The Capital Structure That Minimizes the Weighted Average Cost of Capital

question 111

Multiple Choice

The capital structure that minimizes the weighted average cost of capital will also

• A)maximize EPS for any given level of EBIT.
• B)minimize the value of the firm.
• C)minimize bankruptcy costs.
• D)maximize the price per share of common stock.

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Definitions:

Economic Profits

Profits calculated as total revenues minus explicit and implicit costs, differing from accounting profits by taking into account opportunity costs.

Marginal Cost

The escalation in total expenses incurred from creating an additional unit of a product or service.

Excess Capacity

The situation where a firm has resources that are not being fully utilized, often leading to inefficiency and increased costs.

Monopolistic Competitor

A market structure where many firms sell products that are similar but not identical, allowing them some power to set prices due to product differentiation.