Economics · Financial Management
Assertion (A): In the traditional theory of capital structure, there exists an optimal capital structure at which the overall cost of capital is minimum and the value of the firm is maximum. Reason (R): This is because, beyond a certain level of financial leverage, the increase in the cost of equity due to higher financial risk outweighs the advantage of using cheaper debt capital. Choose the correct answer from the options given below:
Verified Solution4 OptionsUpdated: October 2026👁️1 View
Share:
- 1(A) is false but (R) is true.
- 2(A) is true but (R) is false.
- 3Both (A) and (R) are true but (R) is NOT the correct explanation of (A).
- 4Both (A) and (R) are true and (R) is the correct explanation of (A).✓
Correct answer
Both (A) and (R) are true and (R) is the correct explanation of (A).
Download Single Question PDF
Save this question and verified answer as a clean study sheet with live clickable link.
👥
Share with Friends & Study Groups
Challenge your peer aspirants on WhatsApp or Telegram to solve this question!
Online Test Series
Start Free Mock Test →Preparing for Economics?
Practice full-length mock tests with real exam timers, instant score analysis, and all-India ranking.
Chapter Practice
Practice Financial Management MCQs →Want more practice questions on Financial Management?
Solve complete topic-wise tests with detailed solutions on GkGet.
Related Practice Questions
Recommended practice questions in Economics · Financial Management