Which of the following statements is CORRECT?
A) The optimal capital structure simultaneously maximizes EPS and minimizes the WACC.
B) The optimal capital structure minimizes the cost of equity, which is a necessary condition for maximizing the stock price.
C) The optimal capital structure simultaneously minimizes the cost of debt, the cost of equity, and the WACC.
D) The optimal capital structure simultaneously maximizes stock price and minimizes the WACC.
E) As a rule, the optimal capital structure is found by determining the debt-equity mix that maximizes expected EPS.

Question

Quizplus · Accepted Answer

The optimal capital structure is one that balances the trade-off between risk and return to maximize the company's stock price while also minimizing the weighted average cost of capital (WACC). This balance is crucial because a lower WACC can lead to a higher stock price, reflecting the cost efficiency of financing, but it must be achieved without taking on excessive risk that could negatively impact the stock price.

Which of the Following Statements Is CORRECT