Most all companies have a target or optimal capital structure that they try to maintain. Which...

Most all companies have a target or optimal capital structure that they try to maintain. Which of the following describes an "optimal" capital structure? (Note: capital structure is the proportion of money raised from common stock and the proportion raised from debt).

A) The one with the highest cost of debt and the lowest cost of equity.

B) The one that takes the biggest advantage of the tax deductibility of debt by borrowing 100% of the funds required for investment.

C) The capital structure that always borrows half the funds and issues new equity for the other half.

D) The capital structure that results in the lowest cost of obtaining funds; the one with the lowest Weighted Average Cost of Capital (WACC).

E) None of the other answers is correct.

Expert Solution

jeff jeffy answered 4 months ago

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