The value of a ﬁrm is maximized when the:
A)cost of equity is maximized.
B)tax rate is zero.
C)levered cost of capital is maximized.
D)weighted average cost of capital is minimized.
E)debt-equity ratio is minimized.

Question

Quizplus · Accepted Answer

The value of a firm is maximized when the weighted average cost of capital (WACC) is minimized. This is because the WACC represents the required return that a firm must earn on its investments to satisfy all capital providers. If the WACC is minimized, it means that the firm is able to generate the maximum return on its investments with the lowest possible cost of capital, which leads to an increase in the overall value of the firm.

The Value of a ﬁRm Is Maximized When The