Asked by Nayely Quintero on Jun 25, 2024
Verified
When a firm is operating with the optimal capital structure, the weighted average cost of capital will be at its minimal point.
Optimal Capital Structure
The best mix of debt and equity financing that minimizes the company's cost of capital and maximizes its value.
Weighted Average Cost of Capital
A calculation of a firm's cost of capital in which each category of capital is proportionately weighted.
- Understand how the optimal capital structure minimizes the weighted average cost of capital (WACC) and maximizes firm value.
Verified Answer
JL
Joseph LodovichettiJun 25, 2024
Final Answer :
True
Explanation :
The optimal capital structure is the mix of debt, preferred stock, and common equity that minimizes a firm's weighted average cost of capital (WACC) and maximizes its value. When a firm achieves this balance, it is operating at the point where its cost of capital is at its lowest.
Learning Objectives
- Understand how the optimal capital structure minimizes the weighted average cost of capital (WACC) and maximizes firm value.
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