True concerning the optimal capital structure

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Reference no: EM132063978

Which of the following would not be considered when using a "pure" comparative leverage approach to determine the firm's optimal capital structure?

I. The weighted-average cost of capital would not be considered

II. The volatility of EBIT would not be considered

III. The financial leverage of other firms would not be considered

A. I only

B. I and II only

C. I and III only

D. II and III only

E. I, II, and III

Which of the following observations is true concerning the optimal capital structure?

I. Minimizing the cost of capital will invariably maximize the firm's market value

II. The debt ratio at which the cost of capital is minimized may not be favorably regarded by credit agencies and market analysts.

III. Operating income volatility is relevant to selecting an appropriate capital structure, since firms must cover debt service payments from EBIT.

A. I only

B. I and II only

C. I and III only

D. II and III only

E. I, II, and III

Reference no: EM132063978

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