Question

Assume that the managers of Wolves Entertainment Corporation act in the best interests of its shareholders by following the primary goal of the firm as defined by finance. Which of the following capital structures (mix of debt and equity) should the firm’s managers choose? Question 10 options: 1) Stock Price=$20.00 Debt/Assets=40% Equity/Assets=60% Dividends=$1.25 2) Stock Price=$25.00 Debt/Assets=50% Equity/Assets=50% Dividends=$1.75 3) Stock Price=$30.00 Debt/Assets=60% Equity/Assets=40% Dividends=$1.65 4) Stock Price=$26.00 Debt/Assets=70% Equity/Assets=30% Dividends=$1.55

Answer 1

The correct option is Stock Price=$30.00 Debt/Assets=60% Equity/Assets=40% Dividends=$1.65

Step-by-step explanation:

The primary goal of the firm as defined by finance is the maximization of shareholders' wealth.This translates to enhancing the company's performance to an extent that share price is at the optimum possible.

In other words,the shareholders' wealth maximization option is that which gives the highest price per share,which is the third option:Stock Price=$30.00 Debt/Assets=60% Equity/Assets=40% Dividends=$1.65