With an optimal capital structure, ____.
A) overall capital costs are minimized
B) the net present value of new projects is minimized
C) financial leverage is minimized
D) the weighted cost of capital is maximized

Question

Quizplus · Accepted Answer

With an optimal capital structure, overall capital costs are minimized. This means that the company can raise the necessary capital at the lowest cost possible, which will in turn maximize shareholder wealth. Minimizing the net present value of new projects or financial leverage would not necessarily lead to an optimal capital structure. Similarly, maximizing the weighted cost of capital would increase the cost of financing and reduce shareholder wealth.

With an Optimal Capital Structure, ____