1. The optimal capital structure has been achieved when the:

[A] weight of equity is equal to the weight of debt.

[B] debt-to-equity ratio selected results in the lowest possible weighted average cost of capital.

[C] cost of equity is maximized.

2. The optimal capital structure will tend to include more debt for firms with:

[A] less taxable income.

[B] lower probability of financial distress.

[C] substantial tax shields from other sources.