T/F The highest EPS numbers will always produce the lowest WACC figure to maximize stock price

Answer the following true/false statements:

T/F The highest EPS numbers will always produce the lowest WACC figure to maximize stock price
T/F The goal of a firm is to maximize the value of its stock and that occurs at the point where the WACC is the highest
T/F Capital structure refers to the % of equity and the % of debt affirm has with the goal of minimizing that cost or finding the lowest WACC.
T/F Essentially, the whole idea of valuing stocks and bonds and deciding whether or not to accept or reject capital investments (machines, a truck fleet, etc.) is to compute the present value of the cash flows.

Solutions

Expert Solution

False - WACC depends on cost of equity and cost of debt. A higher EPS results in a higher cost of equity (earnings yield approach), and WACC will be higher

False - Value of stock is maximized when WACC is lowest

True - capital structure is the % of different sources of capital. WACC depends on cost of sources of capital, as well as the proportion of those sources of capital in the capital structure

True - capital budgeting and security valuation essentially consist of projecting cash flows, and calculating the present value of those cash flows

jeff jeffy answered 1 year ago

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