What is a firm’s optimal capital structure?, The **optimal capital structure** of a company refers to the proportion in which it structures its equity and debt. It is designed to maintain the perfect balance between maximising the wealth and worth of the company and minimising its cost of **capital**. … The WACC is the weighted average of its cost of equity and debt.

Furthermore, Which of the following statements best describes the optimal capital structure?, The **optimal capital structure** is the mix of debt, equity, and preferred stock that maximizes the company’s earnings per share (EPS). … The **optimal capital structure** is the mix of debt, equity, and preferred stock that minimizes the company’s cost of preferred stock.

Finally, What is optimal capital structure and its features?, An **optimal capital structure** is that proportion of debt and **equity**, which fulfils this objective of a firm. … Thus an **optimal capital structure** tries to optimize two variables at the same time: cost of **capital** and market value of shares.

## Frequently Asked Question:

### What should a firm’s target capital structure do?

A company’s **target capital structure** refers to **capital** which the company is striving to obtain. In other words, **target capital structure** describes the mix of debt, preferred stock and common **equity** which is expected to optimize a company’s stock price.

### Why is target capital structure important?

The **target capital structure** of a company specifies how much the corporation will borrow, what kinds of debt it will carry and how much money the shareholders must contribute. **Capital structure** decisions are among the most **important** strategic selections a company can make.

### How does capital structure affect firm value?

A **company’s capital structure** — essentially, its blend of equity and debt financing — is a significant factor in valuing the business. The relative levels of equity and debt **affect** risk and cash flow and, therefore, the amount an investor would be willing to pay for the **company** or for an interest in it.

### What factors affect the target capital structure?

**For the establishment of a target capital structure, the firm analyzes certain factors such as; mix of debt, preferred stock and common equity.
…
The factors which influence capital structure decisions are:**

- Business risk.
- The firm’s tax position.
- Financial flexibility.
- Managerial conservatism or aggressiveness.

### What is capital structure and why is it important to a company?

**Capital structure** maximizes the **company’s** market price of share by increasing earnings per share of the ordinary shareholders. It also increases dividend receipt of the shareholders. Investment Opportunity: **Capital structure** increases the ability of the **company** to find new wealth- creating investment opportunities.

### What is optimum capital structure and its features?

An **optimum capital structure** has such a proportion of debt and **equity** which will maximise the wealth of the firm. Brigham defines—”the **optimum capital structure** strikes that balance between risk and return which maximises the price of the stock and simultaneously minimizes the firm’s overall cost of **capital**.” …

### What is optimal capital structure?

The **optimal capital structure** of a company refers to the proportion in which it structures its **equity** and debt. It is designed to maintain the perfect balance between maximising the wealth and worth of the company and minimising its cost of **capital**. … The WACC is the weighted average of its cost of **equity** and debt.

### What are the features of capital structure?

Article shared by : ADVERTISEMENTS: Some of the major **features** of sound **capital structure** are as follows: (i) Maximum Return (ii) Less Risky (iii) Safety (iv) Flexibility (v) Economy (vi) Capacity (vii) Control.

### What is the importance of optimal capital structure?

A well-advised **capital structure** enables a company to raise the requisite funds from various sources at the lowest possible cost in terms of market rate of interest, earning rate expected by prospective investors, expense of issue etc.

### Which of the following statement best describes the optimal capital structure?

The **optimal capital structure** is the mix of debt, **equity**, and preferred stock that maximizes the company’s earnings per share (EPS). … The **optimal capital structure** is the mix of debt, **equity**, and preferred stock that minimizes the company’s cost of preferred stock.

### What is optimal capital structure?

The **optimal capital structure** of a company refers to the proportion in which it structures its **equity** and debt. It is designed to maintain the perfect balance between maximising the wealth and worth of the company and minimising its cost of **capital**. … The WACC is the weighted average of its cost of **equity** and debt.

### What is optimal capital structure and its features?

An **optimal capital structure** is that proportion of debt and **equity**, which fulfils this objective of a firm. … Thus an **optimal capital structure** tries to optimize two variables at the same time: cost of **capital** and market value of shares.

### Which of the following statements is correct group of answer choices the capital structure that maximizes expected EPS also maximizes the price per share of common stock The capital structure that minimizes the interest rate on debt also maximizes the expected EPS the capital structure that minimizes the required?

**Answer** Selected **Answer**: The **capital structure that maximizes expected EPS also maximizes the price per share of common stock**. **Correct Answer**: The **capital structure that minimizes** the WACC **also maximizes the price per share of common stock**.

### What is optimal capital structure and its features?

An **optimal capital structure** is that proportion of debt and **equity**, which fulfils this objective of a firm. … Thus an **optimal capital structure** tries to optimize two variables at the same time: cost of **capital** and market value of shares.

### What is optimal capital structure quizlet?

What is **optimal capital structure**? a. It is the mix of debt, preferred stock and common **equity** that maximizes profits. … It is the mix of debt, preferred stock and common **equity** that minimizes the weighted cost of the firm’s employed **capital**.

### What is the importance of optimal capital structure?

A well-advised **capital structure** enables a company to raise the requisite funds from various sources at the lowest possible cost in terms of market rate of interest, earning rate expected by prospective investors, expense of issue etc.

### Which statement best describes the optimal capital structure?

The **optimal capital structure** is the mix of debt, **equity**, and preferred stock that minimizes the company’s cost of preferred stock.