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Which mix of debt and equity that minimizes cost of capital

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Reference no: EM132809400

Problem 1: Although debt financing is usually the cheapest component of capital, it can not be used excessively because

A. the interest rates may change.

B. the firm's stock price will increase and raise the cost of equity financing.

C. the financial risk of the firm may increase and thus drive up the cost of all sources of financing.

D. none of the above

Problem 2: Finacial risk refers to the

A. risk of owning equity securities

B. risk faced by equity holders when debt is used

C. general business risk of the firm

D. possibility that interest rates will increase

Problem 3: The mix of debt and equity that minimizes the cost of capital is the

A. optimal operating leverage

B. target financial structure

C. optimal degree of combined leverage

D. optimal capital structure

Reference no: EM132809400

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