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:

Dividends

Dividends are a portion of a company's earnings that are distributed to its shareholders as a reward for their investment.

Impairment Loss

A charge against earnings representing the amount by which the carrying amount of an asset exceeds its recoverable amount.

Goodwill

An intangible asset that arises when a company acquires another business for more than the fair value of its net tangible and identifiable intangible assets.

Intangible Assets

Non-physical assets that represent a value to a company, such as patents, trademarks, copyrights, and goodwill.