Asked by Daniel Volante on May 30, 2024
Verified
Which of the following statements is correct?
A) The capital structure that maximizes the common share price is also the capital structure that minimizes the WACC.
B) The capital structure that maximizes the common share price is also the capital structure that maximizes earnings per share.
C) Increasing a company's debt ratio will typically reduce the marginal costs of both debt and equity financing; however, this still may raise the company's WACC.
D) Increasing personal tax rate but decreasing corporate tax rate would encourage companies to increase their debt ratios.
Common Share Price
The market price of a single share of a company's common stock, reflecting the company's valuation, investor sentiment, and market conditions.
WACC
Weighted Average Cost of Capital, a calculation of a firm's capital cost where each category of capital is proportionately weighted.
Debt Ratio
A financial ratio that measures the proportion of a company's total debt to its total assets, indicating the company's leverage level.
- Determine and examine the best capital composition and its effects on the value of a company.
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Learning Objectives
- Determine and examine the best capital composition and its effects on the value of a company.
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