Question

Which of the following statements is CORRECT? a. As a rule, the optimal capital structure is found by determining the debt-equity mix that maximizes expected EPS. b. The optimal capital structure minimizes the cost of equity, which is a necessary condition for maximizing the stock price. c. The optimal capital structure simultaneously maximizes EPS and minimizes the WACC. d. The optimal capital structure simultaneously minimizes the cost of debt, the cost of equity, and the WACC. e. The optimal capital structure simultaneously maximizes stock price and minimizes the WACC.

Answer 1

Answer:

e. The optimal capital structure simultaneously maximizes stock price and minimizes the WACC.

Explanation:

The optimal capital structure involves the combination of both debt and equity where debt is a type of loan which is needed to pay back in some years while the equity represents the ownership of the shareholder in the organization

So here the optimal capital structure represents the maximum stock price that minimizes the weighted average cost of capital

hence, the correct option is d.