The value of a firm is maximized when the:
A) Cost of equity is maximized.
B) Tax rate is zero.
C) Levered cost of capital is maximized.
D) Weighted average cost of capital is minimized.
E) Debt-equity ratio is minimized.

Question

Quizplus · Accepted Answer

The value of a firm is maximized when the Weighted Average Cost of Capital (WACC) is minimized. This is because WACC represents the firm's cost of capital, accounting for the cost of equity, debt, and any other forms of financing. A lower WACC means the firm is using its capital more efficiently, leading to higher value.

The Value of a Firm Is Maximized When The