Which of the following statements is most correct?
a. The optimal capital structure minimizes the WACC. b. If the after-tax cost of equity financing exceeds the after-tax cost of debt financing, firms
are always able to reduce their WACC by increasing the amount of debt in their capital
structure.
c. Increasing the amount of debt in a firm’s capital structure is likely to increase the costs of
both debt and equity financing.
d. Statements a and c are correct.
e. Statements b and c are correct.