What should the firm's target capital structure be set to do? A)maximize the earnings per share (EPS) B)minimize the cost of debt (r_d) C)minimize the cost of equity (r_s) D)minimize the weighted average cost of capital (WACC)

Question

Quizplus · Accepted Answer

The primary objective of setting a target capital structure is to minimize the weighted average cost of capital (WACC). WACC represents the average cost of capital that a company must pay for all its financing sources. By minimizing the WACC, a company can maximize the value of its operations to shareholders. Therefore, D is the best choice. Maximizing EPS or minimizing the cost of debt or equity are not the primary objectives of setting a target capital structure.

What Should the Firm's Target Capital Structure Be Set to Do