The optimal capital structure is the mixture of debt and equity which
A) Maximizes the value of the ﬁrm and Minimizes the ﬁrm's weighted average cost of capital.
B) Maximizes the value of the ﬁrm and maximizes the market price of the ﬁrm's bonds.
C) I. Maximizes the value of the ﬁrm. II. Minimizes the ﬁrm's weighted average cost of capital. III. Maximizes the market price of the ﬁrm's bonds.
D) Minimizes the ﬁrm's weighted average cost of capital and maximizes the market price of the ﬁrm's bonds.
E) Maximizes the ﬁrm's weighted average cost of capital and maximizes the market price of the ﬁrm's bonds.

Question

Quizplus · Accepted Answer

The optimal capital structure is the one that maximizes the firm's value by minimizing the weighted average cost of capital (WACC).

The Optimal Capital Structure Is the Mixture of Debt and Equity