The optimal firm value is achieved when the:
A) Present value of the bankruptcy cost is minimized.
B) The interest tax shield on debt is maximized.
C) Weighted average cost of capital is minimized.
D) Debt-equity ratio is maximized.
E) Total net gain from leverage is equal to zero.

Question

Quizplus · Accepted Answer

The optimal firm value is achieved when the Weighted Average Cost of Capital (WACC) is minimized. This is because the WACC represents the average rate of return a company is expected to pay its security holders to finance its assets. A lower WACC indicates that the firm is using its capital more efficiently, leading to a higher firm value.

The Optimal Firm Value Is Achieved When The