Which of the Following Statements Is Correct

question 1

Multiple Choice

Which of the following statements is correct?

• 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 minimizes the cost of equity,which is a necessary condition for maximizing the stock price.
• D) The optimal capital structure simultaneously minimizes the cost of debt,the cost of equity,and the WACC.
• E) Each of the above statements is false.

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Definitions:

R&D Expenditures

Funds allocated by businesses, governments, or other organizations towards research and development in order to innovate and create new products or improve existing ones.

Expected Rate of Return

The anticipated amount of profit or loss an investment is projected to generate, expressed as a percentage of the initial investment.

Fast-Second Strategy

A business approach where companies wait and learn from the market pioneers' experiences before entering the market with a more refined or targeted product.

Dominant Firm

A company with a substantial market share and the power to influence market conditions, often setting prices or standards within the industry.