In order to maximize the shareholder value, the financial manager should strive to move towards the firm's optimal capital structure such that the weighted average cost of capital (WACC) is at its maximum value. True or false?

In order to maximize the shareholder value, the financial manager should strive to move towards the firm's optimal capital structure such that the weighted average cost of capital (WACC) is at its maximum value. True or false?

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter13: Valuation: Earnings-based Approach

Section: Chapter Questions

Problem 1QE

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Concept explainers

Market Efficiency

Market efficiency refers to the market's ability to provide investors with all available information about investment options for buying and selling securities. Market efficiency reflects the true value of securities without undervaluing or overvaluing them. When the quality and quantity of information increase, the market becomes more efficient, allowing it to reduce arbitrage and obtain higher market returns from investment. In a well-functioning market, everyone receives all information completely and immediately at no cost. It opens up a plethora of opportunities for investors to access various investment options.

Question

In order to maximize the shareholder value,
the financial manager should strive to move
towards the firm's optimal capital structure
such that the weighted average cost of capital
(WACC) is at its maximum value.
True or false?

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