Final answer:
The firm's optimal mix of debt and equity is referred to as its target capital structure, which aims to balance risk and cost to maximize shareholder value. Therefore, the correct option is B.
Step-by-step explanation:
The firm's optimal mix of debt and equity is called its target capital structure. This is the ratio or blend of debt and equity that balances the risk and the cost of capital, ultimately maximizing the value of the firm to its shareholders. Firms aim to achieve their target capital structure as it optimally contrasts the advantages of debt, such as tax benefits, with the disadvantages, particularly the increased risk of bankruptcy.
Analysts and investors closely look at this balance because it can significantly impact the firm's value and cost of capital. For instance, if the interest rate is 9%, which represents the cost of financial capital, and the firm can additionally capture a 5% return to society, they are effectively looking at a rate of return of 4%, based on these benefits and costs. This can influence the firm's investment decisions and the amount they choose to invest, such as $183 million considering the hypothetical impact of these rates.