The optimal capital structure does not necessarily minimize the cost of equity.

Question

Quizplus · Accepted Answer

The optimal capital structure is the mix of debt and equity that results in the lowest overall cost of capital for a company. While minimizing the cost of equity is an important consideration in determining the optimal capital structure, it is not the only factor. Other factors such as the cost of debt, the company's risk profile, and its growth prospects must also be taken into account. As a result, it is possible for the optimal capital structure to result in a higher cost of equity than other capital structures that have not been optimized.

The Optimal Capital Structure Does Not Necessarily Minimize the Cost