Which statement best describes the optimal capital structure?
A)The optimal capital structure is the mix of debt, equity, and preferred stock that maximizes the company's earnings per share (EPS).
B)The optimal capital structure is the mix of debt, equity, and preferred stock that maximizes the company's stock price.
C)The optimal capital structure is the mix of debt, equity, and preferred stock that minimizes the company's cost of equity.
D)The optimal capital structure is the mix of debt, equity, and preferred stock that minimizes the company's cost of debt.

Question

Quizplus · Accepted Answer

The optimal capital structure is the one that maximizes the company's stock price, not just its earnings per share (EPS), cost of equity, or cost of debt. This is because the stock price reflects the present value of future cash flows, taking into account the risk and return associated with the company's capital structure.

Which Statement Best Describes the Optimal Capital Structure