The reason why maximizing share value and maximizing EPS do not give the same optimal capital structure is because ________.
A) EPS maximization does not consider risk
B) share value maximization does not consider risk
C) EPS maximization considers cash flows
D) EPS maximization does consider risk

Question

Quizplus · Accepted Answer

Maximizing EPS does not consider risk, whereas maximizing share value does take into account risk. Therefore, the optimal capital structure for these two objectives may differ. Maximizing share value considers the overall financial risk of the company and balances it with the potential for growth in order to achieve the highest value for shareholders. Maximizing EPS, on the other hand, does not consider the effect of risk on earnings and instead focuses solely on increasing the earnings per share.

The Reason Why Maximizing Share Value and Maximizing EPS Do