Which factor is NOT considered when determining the optimum capital structure?a.Business riskb.Financial riskc.Market riskd.Political risk
Question
Which factor is NOT considered when determining the optimum capital structure?
- a. Business risk
- b. Financial risk
- c. Market risk
- d. Political risk
Solution
The factor that is NOT considered when determining the optimum capital structure is d. Political risk.
The optimum capital structure is determined by considering factors that directly impact a company's finances and operations. These include:
a. Business risk: This refers to the risk associated with the company's operations. It can be influenced by a variety of factors, such as competition, market demand, and operational efficiency.
b. Financial risk: This is the risk associated with the company's financial obligations. It is primarily influenced by the company's debt levels and its ability to meet its financial obligations.
c. Market risk: This is the risk of a company's stocks or bonds losing value due to changes in the overall market. It is influenced by factors such as economic conditions, interest rates, and market sentiment.
On the other hand, political risk refers to the risk that a company's operations, profitability, or assets will be affected by political decisions or events. While this can certainly impact a company's overall risk profile, it is not typically a factor that is considered when determining a company's optimum capital structure.
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