The optimal capital structure of a firm
A) minimizes the cost of financing the firm's projects.
B) minimizes interest payments to creditors.
C) maximizes overall value of the firm.
D) Both A and C.

Question

Quizplus · Accepted Answer

The optimal capital structure of a firm should aim to minimize the cost of financing while maximizing the overall value of the firm. This is achieved by finding the right balance between debt and equity financing that minimizes the cost of capital while taking into consideration the risk profile of the firm. By achieving the optimal capital structure, a company can maximize shareholder value and achieve long-term financial success. Therefore, both option A and C are correct. Option B is not the best choice as it only focuses on minimizing interest payments to creditors and does not take into account the overall value of the firm.

The Optimal Capital Structure of a Firm