Which one of the following statements related to the static theory of capital st

Question

Which one of the following statements related to the static theory of capital structure is correct? Select one: a. The linear function of a firm's value has a constant positive slope. b. The actual value of a firm continually rises in direct proportion to the increased use of debt. c. The value of a firm will automatically decrease whenever the debt-equity ratio is decreased. d. A firm's value is maximized when a firm operates at its optimal debt level. e. A firm begins to lose value as soon as the first dollar of debt is incurred.

Explanation / Answer

Answer: Option (d). A firm's value is maximized when a firm operates at its optimal debt level.

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