A firm's optimal capital structure:

a. is generally a mix of 40 percent debt and 60 percent equity.

b. is the debt-equity ratio that results in the lowest possible weighted average cost of capital.

c. is found by locating the mix of debt and equity which causes the earnings per share to equal exactly $1.

d. exists when the debt-equity ratio is .50.

e. is the debt-equity ratio that exists at the point where the firm's weighted aftertax cost of debt is minimised.

Answer:

B. is the debt-equity ratio that results in the lowest possible weighted average cost of capital.

Step-by-step explanation

• A company has to decide the right mix of debt, preferred stock and common stock, and in doing so the company has to keep in mind that though cost of debt will lower because of the tax benefit, too much debt will also attract higher interest expense.
• The company will obviously try to keep their costs of acquiring capital through the above sources (debt, preferred stock and common stock) low 
• The company would go for a mix which helps in keeping costs low and the market value (of stock or company's) high
• (WACC) Weighted average cost of capital = (Cost of Equity * %age of Equity) + (Cost of Debt After Tax * %age of Debt) + (cost of preferred stock * weight of preferred stock)