The combination of debt financing and equity financing that maximizes a firm's value is known as its:
A)optimum degree of financial leverage (DFL).
B)maximum weighted average cost of capital (WACC).
C)maximum business risk.
D)optimal capital structure.
E)optimal indifference point.

Question

Quizplus · Accepted Answer

Optimal capital structure refers to the combination of debt and equity financing that yields the lowest possible cost of funds (maximum value) for a firm. It is the combination that produces the highest possible stock price while minimizing the cost of capital. The optimal capital structure is considered a tradeoff between the business and financial risks of a firm.

The Combination of Debt Financing and Equity Financing That Maximizes