Which one of the following conditions exists at the point where a firm maximises its value?
A)The debt-equity ratio is 1.0.
B)Financial distress costs are equal to zero.
C)The cost of equity is minimised.
D)WACC is minimised
E)The tax benefit from an additional dollar of debt is zero.

Question

Quizplus · Accepted Answer

The point where a firm maximises its value is where WACC is minimised. This is because at this point, the firm is able to balance the cost of its debt and equity while considering the tax benefits of debt financing. When WACC is minimized, the firm is able to make the most efficient use of its capital structure and investments.

Which One of the Following Conditions Exists at the Point