Question

The optimal capital structure has been achieved when the: A. debt-equity ratio is equal to 1. B. debt-equity ratio results in the highest possible weighted average cost of capital. C. weight of equity is equal to the weight of debt. D. debt-equity ratio results in the highest possible equity value. E. debt-equity ratio results in the highest possible firm value.

Answer 1

Considering the available options, the optimal capital structure has been achieved when the "Debt-equity ratio selected results in the lowest possible weighted average cost of capital."

What is the Purpose of the optimal capital structure?

The primary purpose of the optimal capital structure is how a company upholds the perfect balance between maximizing the wealth and value of the company while at the same time reducing capital cost.

Optimal capital structure is a term that describes the proportionality of a company structure in terms of equity and debt.

Hence, in this case, it is concluded that the correct answer is "Debt-equity ratio selected results in the lowest possible weighted average cost of capital."

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