The firm's target capital structure should be consistent with which of the following statements?
A) minimize the cost of debt (rd).
B) obtain the highest possible bond rating.
C) minimize the cost of equity (rs).
D) minimize the weighted average cost of capital (wacc).
E) maximize the earnings per share (eps).

Question

Quizplus · Accepted Answer

The firm's target capital structure should aim to minimize the weighted average cost of capital (wacc), which is the average cost of all the sources of capital in the capital structure. Minimizing the wacc will maximize the value of the firm and benefit shareholders. The other options may not necessarily lead to maximizing the firm's value.

The Firm's Target Capital Structure Should Be Consistent with Which