The value of a firm at optimum capital structure is computed as ________.
A) earnings before interest and taxes times one less tax rate divided by one plus weighted average cost of capital
B) earnings before interest and taxes times one less tax rate divided by weighted average cost of capital
C) operating cash flow divided by weighted average cost of capital
D) operating cash flow divided by one plus weighted average cost of capital

Question

Quizplus · Accepted Answer

The value of a firm at optimum capital structure is computed as earnings before interest and taxes times one less tax rate divided by weighted average cost of capital. This is because at the optimum capital structure, the cost of debt and equity is balanced, and the weighted average cost of capital is minimized, leading to the value of the firm being maximized.

The Value of a Firm at Optimum Capital Structure Is