Which of the following statements is CORRECT?
A)The capital structure that maximizes expected EPS also maximizes the price per share of common stock.
B)The capital structure that minimizes the interest rate on debt also maximizes the expected EPS.
C)The capital structure that minimizes the required return on equity also maximizes the stock price.
D)The capital structure that minimizes the WACC also maximizes the price per share of common stock.
E)The capital structure that gives the firm the best credit rating also maximizes the stock price.

Question

Quizplus · Accepted Answer

The capital structure that minimizes the WACC (weighted average cost of capital) also maximizes the price per share of common stock. This is because WACC represents the minimum return required by both debt and equity holders, and minimizing it would lower the cost of capital for the firm, making it more valuable to investors. Maximizing the price per share of common stock is not necessarily the same as maximizing expected EPS or minimizing the interest rate on debt. Similarly, the capital structure that gives the firm the best credit rating may not necessarily maximize the stock price.

Which of the Following Statements Is CORRECT