Which of the following statements is CORRECT?
A) the optimal capital structure simultaneously maximizes eps and minimizes the wacc.
B) the optimal capital structure minimizes the cost of equity, which is a necessary condition for maximizing the stock price.
C) the optimal capital structure simultaneously minimizes the cost of debt, the cost of equity, and the wacc.
D) the optimal capital structure simultaneously maximizes stock price and minimizes the wacc.
E) as a rule, the optimal capital structure is found by determining the debt-equity mix that maximizes expected eps.

Question

Quizplus · Accepted Answer

The optimal capital structure is the mix of debt and equity that minimizes the weighted average cost of capital (WACC), which in turn maximizes the firm's value and stock price. Therefore, D is the correct statement, as it specifies that the optimal capital structure simultaneously maximizes stock price and minimizes the WACC. A, B, C, and E are either incomplete or incorrect statements regarding the optimal capital structure.

Which of the Following Statements Is CORRECT