Asked by Angelica Bihasa on May 04, 2024
Verified
When a firm is operating at its target capital structure point, the firm's WACC is at its minimum point.
Target Capital Structure
Refers to the mix of debt, preferred stock, and common equity that a company aims to hold to fund its operations and maximize its value.
WACC
Weighted Average Cost of Capital - a calculation of a firm's cost of capital in which each category of capital is proportionately weighted.
- Acknowledge the ramifications of sustaining a chosen capital structure on the enterprise's market value and the Weighted Average Cost of Capital.
Verified Answer
AR
Alana RossiMay 11, 2024
Final Answer :
True
Explanation :
When a firm operates at its target capital structure, it has optimized the mix of debt, equity, and other financing sources to minimize its weighted average cost of capital (WACC), reflecting the lowest possible cost of financing its operations.
Learning Objectives
- Acknowledge the ramifications of sustaining a chosen capital structure on the enterprise's market value and the Weighted Average Cost of Capital.
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