All options.

#1. right-hand or bottom, left-hand or top

#2. debt capacity, equity capacity

#3. optimal, target

#4. actual, optimal

#5. minimize, maximize

#6. equity-to-debt ratio, debt-to-equity ratio

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 Theiss Telecommunications is meeting with his newly hired assistant, Julie 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 Theiss Telecom'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, Julie, 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? Julie 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 Theiss Telecom's current capital structure consists of 34.5% debt and 65.5% common equity, then we know that our current of debt in the capital structure, is 34.5% , or the proportion CFO And? Julie We know that Theiss Telecom can exhibit three possible capital structures: its current, actual capital structure, a target capital structure, and an optimal capital structure. The capital structure is the long-run structure at which Theiss Telecom ultimately wants to operate, while an and make our shareholders very happy capital structure will maximize the value of Theiss Telecom's common stock CFO Good, Julie! Now, is there a relationship between a firm's optimal capital structure and its weighted average cost of capital or WACC? Julie 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 CFO Excellent overview, Julie! You've passed my first test with flying colors! With this understanding of the theory and some real-world experience, you'll be earning your bonus in no time