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 reflects the cost of all sources of capital (equity and debt) that a firm uses to finance its operations. By minimizing WACC, a firm can allocate its resources efficiently and maximize its value for shareholders. While other factors may also impact a firm's value, minimizing WACC is a key goal for optimizing its performance.

The Value of a ﬁRm Is Maximized When The