As a general rule,the capital structure that
A) Maximizes expected EPS also maximizes the price per share of common stock.
B) Minimizes the interest rate on debt also maximizes the expected EPS.
C) Minimizes the required rate on equity also maximizes the stock price.
D) Maximizes the price per share of common stock also minimizes the weighted average cost of capital.
E) None of the above.

Question

Quizplus · Accepted Answer

The capital structure that maximizes the price per share of common stock is the one that minimizes the weighted average cost of capital (WACC). This is because a lower WACC reduces the discount rate applied to future cash flows, increasing the present value of those cash flows and thus the stock price.

As a General Rule,the Capital Structure That