The capital structure chosen by a firm doesn't really matter because of:
A)taxes.
B)the interest tax shield.
C)the relationship between dividends and earnings per share.
D)the effects of leverage on the cost of equity.
E)homemade leverage.

Question

Quizplus · Accepted Answer

Homemade leverage, which occurs when investors adjust their personal borrowing and lending to mimic the effects of the firm's financing choices, can largely offset any differences in the firm's capital structure. Therefore, the capital structure chosen by the firm doesn't really matter.

The Capital Structure Chosen by a Firm Doesn't Really Matter