The_________approach to capital structure proposes that an optimal capital structure be selected which_________.
A) M and M; maximizes the weighted average cost of capital
B) residual theory; minimizes dividends
C) EBIT-EPS; maximizes the EPS
D) traditional; minimizes the cost of debt

Question

Quizplus · Accepted Answer

The EBIT-EPS approach focuses on finding the capital structure that maximizes earnings per share (EPS) for a given level of earnings before interest and taxes (EBIT). This approach considers both the cost of debt and equity and finds the mix of financing that will maximize EPS, which is ultimately the goal of many firms. Therefore, option C is the best choice.

The_________approach to Capital Structure Proposes That an Optimal Capital Structure