Which of the following statements is true? I. The optimal capital structure of a firm maximizes the value of the firm (V) II. The optimal capital structure of a firm minimizes its cost of capital (WACC) A) Both I & II are true B) Both I & II are not true C) II D) I
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The optimal capital structure of a firm maximizes the value of the firm (V) This statement is generally true. The optimal capital structure is the mix of debt and equity financing that maximizes the value of the firm. This is because the optimal capital structure Show more…
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Which of the following statements is CORRECT? A. The capital structure that maximizes expected EPS also maximizes the price per share of common stock. B. The capital structure that minimizes the interest rate on debt also maximizes the expected EPS. C. The capital structure that minimizes the required return on equity also maximizes the stock price. D. The capital structure that minimizes the WACC also maximizes the price per share of common stock. E. The capital structure that gives the firm the best bond rating also maximizes the stock price
Which one of the following statements is INCORRECT concerning the equity component of the WACC? A. The equity component of WACC reflects the return expected by the company's shareholders. B. Market values should be used in calculating WACC. C. Preferred equity is a separate component of WACC. D. There is no tax shield on the dividends paid.
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