The optimal capital structure is the mixture of debt and equity which
A) Maximizes the value of the firm and Minimizes the firm's weighted average cost of capital.
B) Maximizes the value of the firm and maximizes the market price of the firm's bonds.
C) Maximizes the value of the firm. II. Minimizes the firm's weighted average cost of capital. III. Maximizes the market price of the firm's bonds.
D) Minimizes the firm's weighted average cost of capital and maximizes the market price of the firm's bonds.
E) Maximizes the firm's weighted average cost of capital and maximizes the market price of the firm's bonds.

Question

Quizplus · Accepted Answer

The optimal capital structure is defined as the mix of debt and equity financing that maximizes a company's market value while minimizing its cost of capital. Choices B, C, D, and E either include incorrect goals (like maximizing the market price of the firm's bonds or maximizing the firm's weighted average cost of capital) or separate the components of the correct answer into multiple parts.

The Optimal Capital Structure Is the Mixture of Debt and Equity