- CFA Exams
- 2021 CFA Level I Exam
- Study Session 10. Corporate Finance (1)
- Reading 33. Cost of Capital
- Subject 1. Cost of Capital

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**CFA Practice Question**

Which of the following statements is true?

II. The optimal capital structure is the mix of debt and equity that minimizes the cost of debt.

III. The optimal capital structure is the mix of debt and equity that maximizes dividend payments.

I. The optimal capital structure is the mix of debt and equity that maximizes the NPV of a firm's investment project.

II. The optimal capital structure is the mix of debt and equity that minimizes the cost of debt.

III. The optimal capital structure is the mix of debt and equity that maximizes dividend payments.

Correct Answer: I

The optimal capital structure is the mix of debt and equity that maximizes the value of the firm.

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**User Contributed Comments**
3

User |
Comment |
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examinee |
II is false since it says minimize the cost of DEBT, not capital. |

jj122 |
Why is 3 false ? |

ascruggs92 |
The objective of capital structuring is not to maximize dividend payouts, it is to make an accurate estimate of the NPV of the project's return. Whether a company currently pays dividends or intends to do so in the future is irrelevant. |