The firm's target capital structure is consistent with which of the following?
A) minimum risk
B) maximum earnings per share
C) minimum weighted average cost of capital
D) minimum cost of equity

Question

Quizplus · Accepted Answer

The target capital structure is the mix of debt and equity financing that allows a company to minimize its weighted average cost of capital (WACC). This is because the WACC is the average rate of return the company must pay to all its investors to compensate them for the risk of investing in the company. A lower WACC means the company can raise money more cheaply and invest in profitable projects to maximize shareholder value. Therefore, the focus of the firm's target capital structure should be on minimizing the WACC, which makes option C the best choice.

The Firm's Target Capital Structure Is Consistent with Which of the Following