A firm should raise capital according to its optimal capital structure so as to maximise its

Question

Quizplus · Accepted Answer

The optimal capital structure of a firm is the mix of debt and equity that minimizes the cost of capital and maximizes the share price. Therefore, raising capital according to the optimal capital structure would lead to an increase in share price. It is not necessary that the earnings per share (EPS) or net income would increase, as they depend on other factors such as revenue and expenses. The weighted average cost of capital (WACC) would also not necessarily increase or decrease, as it is a measure of the overall cost of financing a company's operations.

A Firm Should Raise Capital According to Its Optimal Capital