Series 79 practice questioneasyOptimal Capital Structure
In theory, what is the primary goal of determining a company's optimal capital structure?
- ATo maximize the company’s total debt obligations
- BTo minimize the company’s weighted average cost of capital (WACC)✓ Correct answer
- CTo minimize dilution for existing shareholders
- DTo maximize short-term profit margins
Explanation
Why B — To minimize the company’s weighted average cost of capital (WACC)
The optimal capital structure minimizes the WACC, thereby maximizing firm value. Maximizing debt, minimizing dilution, or maximizing short-term margins are not the primary objectives of capital structure optimization.
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