A Firm's Optimal Capital Structure Is the Combination of Debt

question 42

Multiple Choice

A firm's optimal capital structure is the combination of debt financing and equity financing that ______. 

• A)maximizes its expected earnings per share (EPS).
• B)simultaneously maximizes its EPS and minimizes its weighted average cost of capital (WACC).
• C)minimizes its cost of equity, which is a necessary condition for maximizing the firm's stock price.
• D)simultaneously minimizes its cost of debt, its cost of equity, and its WACC.
• E)maximizes its stock price.

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Definitions:

Settlement Price

The official price at the close of a trading session on a futures exchange, used for determining margin requirements and the next day's price limits.

Future Contract

A legal agreement to buy or sell a particular commodity or asset at a predetermined price at a specific time in the future, reiterating the concept of futures contracts with a focus on its nature as a legal agreement.

Spot Price

The current market price at which a particular asset can be bought or sold for immediate delivery.

Oil

A natural resource used as a primary energy source and raw material in various industries, whose market dynamics significantly influence global economics.