CFA Practice Question

There are 233 practice questions for this study session.

CFA Practice Question

Which of the following statements is true?

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.

User Contributed Comments 3

User Comment
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.
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