medium · Principles of Finance cost-of-capital-structure
If a firm's WACC is minimized at a Debt-to-Value (D/V) ratio of 40%, what can be inferred about the firm's Enterprise Value at this specific point?
- The Enterprise Value is at its lowest point because the firm has taken on excessive financial risk here.
- The Enterprise Value is maximized because the discount rate for its cash flows is at its lowest possible level.
- The Enterprise Value stays completely independent of the WACC according to Modigliani-Miller's Proposition I here.
- The Enterprise Value simply equals the recorded historical book value of the firm's total assets on its own balance sheet.
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