The combination of debt and equity that maximizes a firm's value is known as the
A)degree of financial leverage (DFL).
B)maximum WACC.
C)maximum business risk.
D)optimal capital structure.

Question

Quizplus · Accepted Answer

The optimal capital structure is the combination of debt and equity that maximizes a firm's value. This is important because too much debt can increase financial risk and too much equity can decrease returns for shareholders. Therefore, finding the optimal mix is key for a firm to achieve its financial goals. The degree of financial leverage (DFL) is a measure of financial risk, the maximum WACC is the point where the cost of capital is highest, and maximum business risk is not a common finance term.

The Combination of Debt and Equity That Maximizes a Firm's