What is optimal capital structure?
A) It is the mix of debt, preferred stock, and common equity that maximizes profits.
B) It is the mix of debt, preferred stock, and common equity that minimizes risk.
C) It is the mix of debt, preferred stock, and common equity that minimizes the weighted cost to the firm of its employed capital.
D) It is the mix of common and preferred stock that maximizes dividends to the stockholders.

Question

Quizplus · Accepted Answer

Optimal capital structure is the mix of debt, preferred stock, and common equity that minimizes the weighted cost to the firm of its employed capital. This means that the company should aim to achieve the lowest possible cost of capital while still maintaining a reasonable level of risk. This balance is achieved by selecting an appropriate mix of debt, preferred stock, and common equity. By minimizing the weighted cost of capital, the company can maximize the returns to its shareholders. Therefore, option C is the correct answer.

What Is Optimal Capital Structure