As a general rule, the optimal capital structure is the one that:
A) maximizes expected EPS and the price per share of common stock.
B) minimizes the interest rate on debt and maximizes the expected earnings per share.
C) minimizes the required rate on equity and maximizes the stock price.
D) maximizes the price per share of common stock and minimizes the weighted average cost of capital.
E) minimizes the expected earnings per share and maximizes the weighted average cost of capital.

Question

Quizplus · Accepted Answer

The optimal capital structure is the one that maximizes the price per share of common stock and minimizes the weighted average cost of capital. This is because a higher stock price is beneficial for shareholders, and a lower cost of capital means the company can take on more projects and investments with higher expected returns. Minimizing the cost of debt and maximizing the required return on equity are also important considerations when determining the optimal capital structure, but ultimately the focus should be on balancing these factors to achieve the best overall outcome.

As a General Rule, the Optimal Capital Structure Is the One