Question

H.cengagu.com MindTap - Cengage Learning 4610 RVC 1198 CENGAGE MINDTAP Assignment 13 - Capital Structure and Leverage 5. Capital structure decisions and firm value Aa Aa 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, a firm should try to establish a capital structure that maximizes the stock price, or shareholder value. This is called the optimal capital structure, it is also the debt equity mix that: Maximizes the company's net income Maximizes the firm's dividends Maximizes the firm's weighted average cost of capital Minimizes the firm's weighted average cost of capital Understanding the impact of debt in the capital structure Suppose you are conducting a workshop on capital structure decisions and you want to highlight certain key issues related to capital structure. Your assistant has made a list of points for your session, but he thinks he might have made some mistakes Review the list and identify which items are correct. Check all that apply. Workshop Talking Points Ndoci dobanding this

Answer 1

Please find below the solution.. let me know if you need any clarification..

correct answer is option : Minimize the firm's weighted average cost of capital.

Optimal capital structure is the one which minimize the firms weighted average cost of capital. at this level firm will have maximization of shareholder's wealth.