Which of the Following Statements Is Correct

question 20

Multiple Choice

Which of the following statements is correct?

• A)When financial leverage is used, the graphical probability distribution of net income would tend to be more peaked than a distribution where no leverage is present, other things held constant.
• B)From an operational standpoint the goal of maintaining financial flexibility translates into maintaining adequate reserve borrowing capacity.
• C)While business risk varies form one industry to another and can change over time, it affects all firms equally within a particular industry.
• D)The optimal capital structure is the one that maximizes EBIT, and this always calls for a debt ratio which is lower than the one that maximizes expected EPS.
• E)The above statements are all false.

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Definitions:

Finishing Department

The section in a manufacturing process where products are completed, tested, and prepared for delivery.

Predetermined Overhead Rate

An estimated charge used to apply manufacturing indirect costs to individual products or job orders, based on a chosen activity base.

Direct Labor-Hours

A measure of the work time spent by employees directly involved in the production of goods or services.

Machine-Hours

A measurement of production output or activity based on the number of hours machines are operated in the manufacturing process.