The optimal capital structure is the one that maximizes __________,and this will always be lower than the debt/equity ratio that maximizes __________.
A) expected EPS; the firm's stock price
B) net income, expected EPS
C) book value of the firm; net income
D) expected EPS; book value of the firm
E) the firm's stock price; expected EPS

Question

Quizplus · Accepted Answer

The optimal capital structure maximizes the firm's stock price, which reflects the overall value of the firm to shareholders. This is typically lower than the debt/equity ratio that maximizes expected EPS, as higher debt can increase EPS but also increases financial risk.

The Optimal Capital Structure Is the One That Maximizes __________,And