Which of the following statements best describes capital structure?
A)The capital structure that maximizes expected EPS also maximizes the price per share of common shares.
B)The capital structure that minimizes the interest rate on debt also maximizes the expected EPS.
C)The capital structure that minimizes the required return on equity also maximizes the share price.
D)The capital structure that minimizes the WACC also maximizes the price per share of common shares.

Question

Quizplus · Accepted Answer

Capital structure refers to the mix of debt and equity that a company uses to finance its operations. The capital structure that minimizes the weighted average cost of capital (WACC) also maximizes the value of the firm and therefore the price per share of common shares. This is because minimizing the WACC means maximizing the return to both debt and equity investors, which in turn increases the likelihood of investors buying the firm's shares, driving up the share price. Therefore, option D is the best choice.

Which of the Following Statements Best Describes Capital Structure