Multiple Choice
Working capital can be computed by taking current assets minus current _____.
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1. Introduction to Accounting
Fundamental Accounting Equation
Multiple Choice
The optimal capital structure is determined by several factors, including all of the following except:
A
Cost of debt
B
Personal preferences of shareholders
C
Tax considerations
D
Business risk
Verified step by step guidance1
Understand the concept of 'optimal capital structure': It refers to the mix of debt and equity financing that minimizes the company's cost of capital while maximizing its value.
Review the factors that influence the optimal capital structure: These typically include cost of debt, tax considerations, and business risk, as they directly impact the company's financial performance and risk profile.
Analyze why 'personal preferences of shareholders' is not a factor: Shareholder preferences are subjective and do not directly affect the financial metrics or risk-return trade-offs that determine the optimal capital structure.
Consider the role of cost of debt: Lower cost of debt can make debt financing more attractive, but excessive debt increases financial risk.
Evaluate tax considerations and business risk: Tax benefits from interest deductions and the inherent risk of the business are critical factors in determining the balance between debt and equity.
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