All of the following statements regarding capital structure weights in the WACC equation are correct except:
A)The weights represent a specific intended financing mix.
B)These target weights represent a mix of debt and equity that the firm will try to achieve or maintain over the planning horizon.
C)As much as possible, the target weights should reflect the combination of debt and equity that management believes will minimize the firm's weighted average cost of capital.
D)The firm should make an effort over time to move toward and maintain its target capital structure mix of debt and equity.
E)All of the above statements are correct.

Question

Quizplus · Accepted Answer

All of the statements are correct regarding capital structure weights in the WACC equation. They represent a specific financing mix that the firm intends to achieve or maintain over the planning horizon. The target weights should reflect the combination of debt and equity that the management believes will minimize the firm's cost of capital. The firm should make an effort over time to move towards and maintain its target capital structure mix.

All of the Following Statements Regarding Capital Structure Weights in the WACC