Aa Aa E. 5. Capital structure decisions and firm value Why focus on the optimal capital structure? Capital structure decisions involve the ways a firm's assets are financed and are often presented as a percentage of the type of financing used, such as debt, preferred stock, and common equity. 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 maximizes the firm's earnings per share (EPS). O The optimal capital structure maximizes the firm's cost of equity. O The optimal capital structure minimizes the firm's weighted average cost of capital (WACC