Answer (C) is correct . Financial structure is the composition of the financing sources of the assets of a firm. Traditionally, the financial structure consists of current liabilities, long- term debt, retained earnings, and stock. For most firms, the optimum structure includes a combination of debt and equity. Debt is cheaper than equity, but excessive use of debt increases the firm’s risk and drives up the weighted-average cost of capital.
Answer (A) is incorrect because The maximization of EPS may not always suggest the best capital structure.
Answer (B) is incorrect because The minimization of debt cost may not be optimal; as long as the firm can earn more on debt capital than it pays in interest, debt financing may be indicated.
Answer (D) is incorrect because Minimizing the cost of equity may signify overly conservative management.
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