Answer: TRUE
Explanation:
A firm's value is the PV of the expected cash flows, when discounted at the WACC. So to maximize the firm's value, the WACC should be minimized, as lower the discount rate higher is the present value.
QUESTION 28 The optimal capital structure maximizes the firm's value, and minimizes the WACC, in theory....
QUESTION 28: The optimal capital structure maximizes the firm’s value, and minimizes the WACC, in theory. True False
Which of the following statements regarding a firm's optimal capital structure are true? Check all that apply The optimal capital structure maximizes the firm's EPS The optimal capital structure minimizes the firm's cost of debt. The optimal capital structure minimizes the firm's cost of equity. The optimal capital structure minimizes the firm's WACC. The optimal capital structure maximizes the firm's stock price.
Which of the following choices is CORRECT? Select one: a. An optimal capital structure simultaneously maximizes EPS and minimizes the WACC b. An optimal capital structure simultaneously maximizes stock price and minimizes the WACC c. An optimal capital structure minimizes the cost of equity, which leads to maximizing the stock price d. An optimal capital structure simultaneously minimizes the cost of debt, the cost of equity, and the WACC e. An optimal capital structure is found by determining the debt-equity mix...
Why focus on the optimal capital structure? A company's capital structure decisions address the ways a firm's assets are financed (using debt, preferred stock and common equity capital) and is often presented as a percentage of the type of financing used As with all financial decisions, the firm should try to set a capital structure that maximizes the stock price, or shareholder value. This is called the optimal capital structure Which of the following statements regarding a firm's optimal capital...
Understanding the optimal capital structure Review this situation: Universal Exports Inc. is trying to identify its optimal capital structure. Universal Exports Inc. has gathered the following financial information to help with the analysis. Debt Ratio Equity Ratio EPS DPS Stock Price 30% 40% 50% 60% 70% 7096 1.25 0.55 36.25 6096 1.40 0.60 37.75 50% 1.60 0.65 39.50 40% 1.85 0.75 38.75 30% 1.75 0.70 38.25 Which capital structure shown in the preceding table is Universal Exports Inc. 's optimal...
Review this situation: Universal Exports Inc. is trying to identify its optimal capital structure. Universal Exports Inc. has gathered the following financial information to help with the analysis. Debt Ratio Equity Ratio 30% 70% Stock Price 36.25 37.75 40% 60% EPS 1.25 1.40 1.60 1.85 1.75 DPS 0.55 0.60 0.65 0.75 0.70 50% 50% 39.50 60% 40% 38.75 70% 30% 38.25 Which capital structure shown in the preceding table is Universal Exports Inc.'s optimal capital structure? O Debt ratio =...
According to the trade-off theory, a firm's optimal capital structure: Question 8 options: is the debt-equity ratio that results in the lowest possible weighted average cost of capital. exists when the debt-equity ratio is 0.50. is the debt-equity ratio that exists at the point where the firm's weighted after-tax cost of debt is minimized. is found by locating the mix of debt and equity which causes the earnings per share to equal exactly $1.
According to the trade-off theory, a firm's optimal capital structure: Question 11 options: exists when the debt-equity ratio is 0.50. is the debt-equity ratio that results in the lowest possible weighted average cost of capital. is found by locating the mix of debt and equity which causes the earnings per share to equal exactly $1. is the debt-equity ratio that exists at the point where the firm's weighted after-tax cost of debt is minimized.
What is a firm's optimal capital structure? The optimal capital structure refers to a capital structure that: (Select the best choice below.) A. is comprised of 99.9% equity capital B. will minimize the composite cost of a firm's capital for raising a given amount of funds C. will minimize the firm's common stock price D. is comprised of 99.9% debt capital.
Despite the extensive research conducted in recent years in the area of capital structure theory, it is not yet possible to provide financial managers with a specified methodology for use in determining a firm's optimal capital structure. True False