In making capital structure decisions, financial managers must anticipate the common fears and desires, as well as the conflicting interests and concerns, of the firm's creditors and shareholders. This requires managers to recognize and manage the trade-offs associated with these two financing constituencies. Ideally, financial managers should consider a variety of factors when establishing or changing a firm's capital structure. While the uitimate objective is the maximization of their shareholders' wealth, more immediate operational criteria include the market perceptions of the consequences of the manager's decisions on the firm's long-term viability and solvency, riskiness, and ability to generate cash fiows when needed. Statement is false because: the tax shield created by the deductibility of a firms interest expense renders the after-tax costs of debt less than the after-tax cost of equity and encourages the use of debt. firms with higher profits or stable cash flows are better able to service the interest payments and principal-repayment obligations associated with the increased use of debt financing