Which of the Following Statements Is CORRECT

question 63

Multiple Choice

Which of the following statements is CORRECT?

• A)In general, a firm with low operating leverage also has a small proportion of its total costs in the form of fixed costs.
• B)There is no reason to think that changes in the personal tax rate would affect firms' capital structure decisions.
• C)A firm with high business risk is more likely to increase its use of financial leverage than a firm with low business risk, assuming all else equal.
• D)If a firm's after-tax cost of equity exceeds its after-tax cost of debt, it can always reduce its WACC by increasing its use of debt.
• E)Suppose a firm has less than its optimal amount of debt.Increasing its use of debt to the point where it is at its optimal capital structure will decrease the costs of both debt and equity financing.

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Definitions:

State Apparatus

Structures and institutions through which a state exercises its power and authority, including the government, military, police, and judicial systems.

Capitalism

Capitalism is an economic system characterized by private ownership of the means of production, where profits are generated through the operation of competitive markets.

Private Ownership

The legal right of individuals or entities to own property and assets independently of the government or communal entities.

Criminal Laws

The body of law that relates to crime, prescribing the conduct perceived as threatening, harmful, or otherwise endangering to individuals and property, including the punishment of people who violate these laws.