Asked by Anthony Flesher on May 31, 2024
Verified
A firm's target capital structure is management's estimate of the optimal capital structure.
Target Capital Structure
The ideal mix of debt, equity, and other financing sources a company aims to maintain to fund its operations and growth.
Optimal Capital Structure
The most favorable mix of debt and equity financing that minimizes the company's cost of capital and maximizes its value.
- Realize the difference between a firm's target and optimal capital structure.
Verified Answer
ZK
Zybrea KnightJun 04, 2024
Final Answer :
True
Explanation :
A firm's target capital structure is typically determined by management as the optimal mix of debt and equity financing that will maximize the value of the firm. It is based on various factors such as the firm's growth opportunities, market conditions, industry trends, and risk appetite.
Learning Objectives
- Realize the difference between a firm's target and optimal capital structure.