The optimal capital structure has been achieved when the:
A) debt-equity ratio is equal to 1.
B) weight of equity is equal to the weight of debt.
C) cost of equity is maximized given a pre-tax cost of debt.
D) debt-equity ratio selected results in the lowest possible weighed average cost of capital.

Question

Quizplus · Accepted Answer

The optimal capital structure is achieved when the firm has selected a debt-equity ratio that results in the lowest possible weighted average cost of capital (WACC). This minimizes the firm's financing costs and maximizes its value.

The Optimal Capital Structure Has Been Achieved When The