The objective of capital structure management is to maximize the market value of the firm's common stock.

Question

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The main objective of capital structure management is to find the right balance between debt and equity financing that will lead to the highest possible value of the firm's shareholders' equity or common stock. This is often achieved by finding the optimal mix of debt and equity that balances the benefits and costs of each form of financing and that takes into account the firm's risk, profitability, and growth prospects. Under this approach, the goal is to minimize the weighted average cost of capital (WACC), which is the required return that investors demand in exchange for providing funds to the firm, and to maximize the residual income or economic value added (EVA), which is the excess return above the cost of capital that the firm generates from its investments. Ultimately, the success of capital structure management depends on the ability of the firm's management to make sound financial decisions that create value for its stakeholders over the long-term.

The Objective of Capital Structure Management Is to Maximize the Market