Chapter 14: Capital Structure and Leverage

Capital: Investor-supplied funds such as long- and short-term loans from individuals
and institutions, preferred stock, common stock, and retained earnings

Capital Structure: The mix of debt, preferred stock, and common equity that is used to
finance the firm’s assets.

Optimal Capital Structure The capital structure that maximizes a stock’s intrinsic
value.

Business Risk The riskiness inherent in the firm’s operations if it uses no debt.