FIN 534 - Homework Chapter 15 Answers

1. The firm's target capital structure should be consistent with which of the following statements?

a. Minimize the cost of debt (rd).

b. Obtain the highest possible bond rating.

c. Minimize the cost of equity (rs).

d. Minimize the weighted average cost of capital (WACC).

e. Maximize the earnings per share (EPS).

1. Which of the following statements is CORRECT?

a. The factors that affect a firm's business risk are affected by industry characteristics and economic conditions. Unfortunately, these factors are generally beyond the control of the firm's management.

b. One of the benefits to a firm of being at or near its target capital structure is that this eliminates any risk of bankruptcy.

c. A firm's financial risk can be minimized by...