When choosing a capital structure, the objective of the firm should be to:
A) Choose the one that maximizes the current value of the firm's bonds.
B) Choose the one that minimizes the value of the firm.
C) Choose the one that minimizes the firm's WACC.
D) Choose the one that results in the largest interest tax shield.
E) Choose any capital structure since it is always irrelevant.

Question

Quizplus · Accepted Answer

The objective of choosing a capital structure should be to minimize the firm's weighted average cost of capital (WACC). A lower WACC indicates a lower cost of financing the firm's operations, which can lead to an increase in the firm's value.

When Choosing a Capital Structure, the Objective of the Firm