As a General Rule,the Capital Structure That

question 41

Multiple Choice

As a general rule,the capital structure that

• A) Maximizes expected EPS also maximizes the price per share of common stock.
• B) Minimizes the interest rate on debt also maximizes the expected EPS.
• C) Minimizes the required rate on equity also maximizes the stock price.
• D) Maximizes the price per share of common stock also minimizes the weighted average cost of capital.
• E) None of the above.

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Definitions:

Residual Value

The estimated value an asset will realize upon the conclusion of its useful life, considered in depreciation calculations.

Operating Lease Method

An accounting method for leasing whereby the lease payments are treated as an operational expense, without recording the asset and liability on the balance sheet.

Straight-Line Depreciation

An approach that spreads the expense of a physical asset across its productive lifespan in consistent yearly increments.

Capital Lease

A lease classified as a purchase by the lessee for accounting purposes, as it transfers substantially all risks and benefits of ownership.