Which of the following statements is CORRECT?
A) the capital structure that minimizes the interest rate on debt also maximizes the expected eps.
B) the capital structure that minimizes the required return on equity also maximizes the stock price.
C) the capital structure that minimizes the wacc also maximizes the price per share of common stock.
D) the capital structure that gives the firm the best credit rating also maximizes the stock price.
E) the capital structure that maximizes expected eps also maximizes the price per share of common stock.

Question

Quizplus · Accepted Answer

The capital structure that minimizes the WACC (weighted average cost of capital) also maximizes the price per share of common stock because it indicates that the firm is using the most efficient mix of debt and equity financing to fund its projects. This, in turn, reduces the overall cost of capital for the firm, increasing the value of the firm and its stock price. The other statements are not necessarily true because they do not take into account the optimal mix of debt and equity financing to minimize the WACC.

Which of the Following Statements Is CORRECT