Which of the Following Statements Is CORRECT

question 58

Multiple Choice

Which of the following statements is CORRECT?

• A) The optimal capital structure simultaneously maximizes EPS and minimizes the WACC.
• 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 minimizes the cost of debt, the cost of equity, and the WACC.
• D) The optimal capital structure simultaneously maximizes stock price and minimizes the WACC.
• E) As a rule, the optimal capital structure is found by determining the debt-equity mix that maximizes expected EPS.

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Definitions:

Payback Period

The duration it takes for an investment to return its initial cost, measuring the time to break even.

Internal Rate of Return Method

A capital budgeting method used to estimate the profitability of potential investments, calculated as the rate that makes the net present value of all cash flows zero.

Present Value Concepts

Financial principles used to determine the current value of future cash flows, taking into account specific rates of return or discount rates.

Net Cash Flows

The difference between a company's cash inflows and outflows within a defined period.