Question

Which of the following statements is CORRECT?

A. The capital structure that maximizes expected EPS also maximizes the price per share of common stock.
B. The capital structure that minimizes the interest rate on debt also maximizes the expected EPS.
C. The capital structure that minimizes the required return on equity also maximizes the stock price.
D. The capital structure that minimizes the WACC also maximizes the price per share of common stock.
E. The capital structure that gives the firm the best bond rating also maximizes the stock price

Answer 1

The capital structure that minimizes the WACC also maximizes the price per share of common stock.

The correct answer is D

Step-by-step explanation:

Optimal capital structure is the capital structure that minimizes the WACC and maximizes the price per share of common stock. It follows that any capital structure that minimises the WACC also maximizes the market value of a firm.