Which of the Following Statements Best Describes Optimal Capital Structure

question 19

Multiple Choice

Which of the following statements best describes optimal capital structure?

• 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 simultaneously maximizes EPS and minimizes the WACC.
• 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 common share price and minimizes the WACC.

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Definitions:

NCI Adjustment

An adjustment in consolidated financial statements to reflect the share of equity interest that is not owned by the parent company's shareholders.

Retained Earnings

Retained earnings are the portion of a company's profits that are kept or retained by the company for reinvestment in its operations, rather than being distributed to its shareholders as dividends.

Tax Rate

The percentage at which an individual or corporation is taxed.

Depreciable Non-Current Asset

A long-term asset subject to depreciation, which systematically reduces its book value over its useful life to account for wear and tear.