The value of a firm is maximized when the:
A) cost of equity is maximized.
B) tax rate equals the cost of capital.
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 average rate of return a company must earn on its investments to satisfy its shareholders and debt holders. A lower WACC means the company needs to earn less on its investments to satisfy its capital providers, which in turn increases the value of the firm.

The Value of a Firm Is Maximized When The