Which of the following statements is most correct concerning a corporation's optimal capital structure?
A) The optimal capital structure maximizes the present value of the interest tax shield.
B) The optimal capital structure occurs at the point where the market value of the levered firm is maximized.
C) The optimal capital structure minimizes the present value of financial distress costs and agency costs.
D) The optimal capital structure occurs where the present value of the interest tax shield equals the present value of the firm's bankruptcy costs.

Question

Quizplus · Accepted Answer

The optimal capital structure is the one that maximizes the market value of the firm, which is achieved by balancing the benefits of the interest tax shield against the costs of financial distress and agency costs.

Which of the Following Statements Is Most Correct Concerning a Corporation's