Which of the following statements best describes the optimal capital structure?

Question

Which of the following statements best describes the optimal capital structure?
a. The optimal capital structure is the mix of debt, equity, and preferred stock that maximizes the company's earnings per share (EPS).
b. The optimal capital structure is the mix of debt, equity, and preferred stock that maximizes the company's stock price.
c. The optimal capital structure ius the miux of debt, equity, and preferred stock that minimizes the company's cost of equity.
d. The optimal capital structure is the mix of debt, equity, and preferred stock that minimizes the company's cost of debt.
e. The optimal capital structure is the mix of debt, equity, and preferred stock that minimizes the company's cost of preferred stock.

Explanation / Answer

Which of the following statements best describes the optimal capital structure and why?


b. The optimal capital structure is the mix of debt, equity, and preferred stock that maximizes the company's stock price.





The optimal capital structure is the mix of debt, equity, and preferred stock that maximizes the company’s stock price.
The optimal capital structure is the mix of debt, equity, and preferred stock that minimizes the company’s weighted average cost of capital (WACC).

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