Chapter 13 Lecture Notes Flashcards
(3 cards)
1
Q
The optimal capital structure must strike that balance between risk and return which maximizes the firm’s ___________ and minimizes the firm’s ___________.
A
Stock price
WACC : “Cost of Capital”
2
Q
Business Risk/”Operating Risk”
A
Fluctuation of EBIT, the riskiness inherent in the firm’s operations if it uses no debt
3
Q
Financial Risk
A
Caused by the use of debt, an increase in stockholder’s risk, over and above the firm’s basic business risk, resulting from the use of financial leverage
