The ideal capital structure:
A) Is that combination of debt and equity which results in a debt-equity ratio of 1.0.
B) Is that combination of debt and equity which yields the highest level of sales growth.
C) Is that of an unlevered ﬁrm.
D) Produces the lowest weighted average cost of capital.
E) Is generally unobtainable as it exists only in a ﬁrm ﬁnanced solely with debt.

Question

Quizplus · Accepted Answer

The ideal capital structure is the one that produces the lowest weighted average cost of capital (WACC). This is because WACC measures the overall cost of capital for a company, taking into account both debt and equity financing. By minimizing the cost of capital, a company can maximize its value to shareholders. Therefore, D is the best choice.

The Ideal Capital Structure