At its optimal capital structure, the firm's debt/assets ratio will always be lower than the one that maximizes its _____.
A)expected earnings per share (EPS)
B)weighted average cost of capital
C)beta coefficient
D)degree of financial leverage
E)net operating income

Question

At its optimal capital structure, the firm's debt/assets ratio will always be lower than the one that maximizes its _____. 
A)expected earnings per share (EPS)
B)weighted average cost of capital
C)beta coefficient
D)degree of financial leverage
E)net operating income

Quizplus · Accepted Answer

The optimal capital structure minimizes the weighted average cost of capital (WACC), while the debt/assets ratio that maximizes expected earnings per share (EPS) is typically higher, as it involves more leverage.

At Its Optimal Capital Structure, the Firm's Debt/assets Ratio Will