The Static Theory of Capital Structure Supports the Theory That

Multiple Choice

The static theory of capital structure supports the theory that value-maximizing managers will:

A) Look to the asset side of the balance sheet to increase firm value since the mix of debt and equity selected is unlikely to affect firm value.
B) Not concern themselves with the capital structure of the firm as it is an irrelevant issue.
C) Select the capital structure for which the cost associated with the probability of financial distress equals the benefit of the interest tax shield.
D) Select an all equity capital structure to ensure the value of the firm is maximized.
E) Select the capital structure which maximizes the interest tax shield.