Question

Which of the following statements regarding a firm’s optimal capital structure are true? Check all that apply. The optimal capital structure maximizes the firm’s stock price. The optimal capital structure minimizes the firm’s WACC. The optimal capital structure maximizes the firm’s EPS. The optimal capital structure minimizes the firm’s cost of equity. The optimal capital structure minimizes the firm’s cost of debt.

Answer 1

Answer:

The optimal capital structure minimizes the firm's weighted average cost of capital.

Explanation:

The ideal capital structure of a company refers to the number of shares in the capital of the company itself and partners in the total capital invested so that that company could exist, thus leading to the minimum possible cost of capital, resulting in an allocation efficient capital. This term can be defined as a structure that is directly related to a degree of business risk and the existence of tax taxes on interest on debts.

In summary, the ideal capital structure minimizes the company's weighted average cost of capital.