#1 blank (left-hand or top / right- hand or bottom)

#2 blank "that our current..." (equity capacity / debt capacity)

#3 blank, "the ... capital structure" (target / optimal)

#4 blank, "while an ... capital structure" (optimal / actual)

# 5 blank "it will also... the company" (minimize / maximize)

#6 "value of the ... that corresponds" (equity-to-debt ratio / debt-to-equity ratio)

I will make sure to thumbs up if correct. Thank you!

1. Introduction to capital structure theory Aa Aa In his private office, just down the hall from his conference room, the Chief Financial Officer (CFO) of Teuton Manufacturing is meeting with his newly hired assistant, Valentine CFO Before our next meeting with the bankers, let's take a second and make sure that we have a common understanding about the company's capital structure. We get to choose the form of money used to finance Teuton's activities. We can use borrowed (debt) money or retained earnings, we can sell new shares of common stock, or we can sell new preferred shares. So, my question to you, Valentine, is how do we know what sources of financing have been used in the past, and how much of each should we use in the future? Valentine The section of the company's balance sheet reports the forms of financing that have been used in the past. These forms of financing represent ongoing financial commitments of the firm. Since Teuton's current capital structure consists of 37.5% debt and 62.5% common equity, then we know that our current debt in the capital structure, is 37.5% , or the proportion of CFO And? Valentine We know that Teuton can exhibit three possible capital structures: its current, actual capital capital structure, a target capital structure, and an optimal capital structure. The structure is the long-run structure at which Teuton ultimately wants to operate, while an capital structure will maximize the value of Teuton's common stock and make our shareholders very happy CFO Good, Valentine! Now, is there a relationship between a firm's optimal capital structure and its weighted average cost of capital or WACC? Valentine Yes, there is a relationship; not only will an optimal capital structure maximize the value of a the company's WACC. However, the exact value of the corporation, it will also that corresponds to an organization's optimal capital structure depends on its industry and the characteristics of the firm. 1. Introduction to capital structure theory Aa Aa In his private office, just down the hall from his conference room, the Chief Financial Officer (CFO) of Teuton Manufacturing is meeting with his newly hired assistant, Valentine CFO Before our next meeting with the bankers, let's take a second and make sure that we have a common understanding about the company's capital structure. We get to choose the form of money used to finance Teuton's activities. We can use borrowed (debt) money or retained earnings, we can sell new shares of common stock, or we can sell new preferred shares. So, my question to you, Valentine, is how do we know what sources of financing have been used in the past, and how much of each should we use in the future? Valentine The section of the company's balance sheet reports the forms of financing that have been used in the past. These forms of financing represent ongoing financial commitments of the firm. Since Teuton's current capital structure consists of 37.5% debt and 62.5% common equity, then we know that our current debt in the capital structure, is 37.5% , or the proportion of CFO And? Valentine We know that Teuton can exhibit three possible capital structures: its current, actual capital capital structure, a target capital structure, and an optimal capital structure. The structure is the long-run structure at which Teuton ultimately wants to operate, while an capital structure will maximize the value of Teuton's common stock and make our shareholders very happy CFO Good, Valentine! Now, is there a relationship between a firm's optimal capital structure and its weighted average cost of capital or WACC? Valentine Yes, there is a relationship; not only will an optimal capital structure maximize the value of a the company's WACC. However, the exact value of the corporation, it will also that corresponds to an organization's optimal capital structure depends on its industry and the characteristics of the firm