Asked by megha ramani on Apr 26, 2024
Verified
Which statement best describes optimal capital structure?
A) As a rule, the optimal capital structure is found by determining the debt-equity mix that maximizes expected EPS.
B) The optimal capital structure simultaneously maximizes EPS and minimizes the WACC.
C) The optimal capital structure simultaneously minimizes the cost of debt, the cost of equity, and the WACC.
D) The optimal capital structure simultaneously maximizes common share price and minimizes the WACC.
Optimal Capital Structure
The ideal mix of debt and equity financing that minimizes a company's cost of capital and maximizes its value and stock price.
WACC
Weighted Average Cost of Capital, a calculation of a firm's cost of capital that weighs each category of capital proportionately.
EPS
EPS stands for Earnings Per Share, a key financial indicator that divides net earnings available to shareholders by the average outstanding shares, illustrating the company's profit on a per-share basis.
- Ascertain and scrutinize the ideal capital configuration and its impact on corporate valuation.
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Learning Objectives
- Ascertain and scrutinize the ideal capital configuration and its impact on corporate valuation.
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