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:

Fixed Expenses

Costs that do not fluctuate with the level of production or sales within a certain range, such as rent or salaries.

Absorption Costing

A costing technique that encompasses the total expenses of production, including direct materials, labor, and all overhead costs, both variable and fixed, in a product's cost.

Single Product

A business or manufacturing approach where only one type of product is produced rather than multiple products.

Absorption Costing

An accounting method that includes all direct costs and overhead in the cost of a product.