5. Capital structure decisions and firm value Why focus on the optimal capital structure? A company's capital structure decisions address the ways a firm's assets are financed (using debt, preferred stock, and common equity capital) and is often presented as a percentage of the type of financing used As with all financial decisions, the firm should try to set a capital structure that maximizes the stock price, or shareholder value. This is called the optimal capital structure Which of the following statements regarding a firm's optimal capital structure is true? O The optimal capital structure maximizes the firm's cost of debt. O The optimal capital structure minimizes the firm's weighted average cost of capital. O The optimal capital structure maximizes the firm's cost of equity. O The optimal capital structure maximizes the firm's earnings per share (EPS)