The optimal capital structure of a firm _____ the marketed claims and _____ the nonmarketed claims against the cash flows of the firm.
A) minimizes; minimizes
B) minimizes; maximizes
C) maximizes; minimizes
D) maximizes; maximizes
E) equates; (leave blank)

Question

Quizplus · Accepted Answer

The optimal capital structure maximizes the value of the firm by minimizing the cost of capital, which in turn minimizes the marketed claims (like debt and equity costs) and minimizes the nonmarketed claims (like bankruptcy costs and agency costs) against the firm's cash flows.

The Optimal Capital Structure of a Firm _____ the Marketed