As a general rule, the capital structure that:
A)minimizes the cost of equity also maximizes the stock price
B)maximizes the stock price also minimizes the weighted average cost of capital
C)minimizes the cost of debt also maximizes the expected earnings per share
D)none of the above is a true statement

Question

Quizplus · Accepted Answer

The capital structure that maximizes the stock price also minimizes the weighted average cost of capital. This is because the optimal capital structure balances the use of debt and equity financing to achieve the lowest possible cost of capital, which in turn maximizes the value of the firm and the stock price. Minimizing the cost of equity or debt does not necessarily lead to maximizing the stock price or expected earnings per share.

As a General Rule, the Capital Structure That