The value of a firm is maximized when the:
A)cost of equity is maximized.
B)tax rate is zero.
C)levered cost of capital is maximized.
D)weighted average cost of capital is minimized.
E)debt-equity ratio is minimized.

Question

Quizplus · Accepted Answer

The value of a firm is maximized when the weighted average cost of capital (WACC) is minimized. WACC is the average cost of all the capital sources, which includes both debt and equity. Minimizing the WACC means that the firm is effectively minimizing the cost of all its capital, which results in maximizing the firm's overall value.

The Value of a Firm Is Maximized When The