Answer // a. The capital structure that gives the firm the best bond rating also

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a. The capital structure that gives the firm the best bond rating also maximizes the stock price. b. The capital structure that minimizes the required return on equity also maximizes the stock price. c. The capital structure that maximizes expected EPS also maximizes the price per share of common stock. d. The capital structure that minimizes the interest rate on debt also maximizes the expected EPS. e. The capital structure that minimizes the WACC also maximizes the price per share of common stock.

Explanation / Answer

The goal of the capital structure is to maximise the stock price or the stockholder's wealth. If the WACC is the lowest, the stock price must be the highest. The capital structure that maximises the stock price is also the capital structure that minimizes the Weighted average cost of capital. Therefore, the correct option is e) The capital structure that minimises the WACC also maximises the price per share of common stock.

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