Which of the Following Statements Is CORRECT

question 71

Multiple Choice

Which of the following statements is CORRECT?

• A) A firm can use retained earnings without paying a flotation cost.Therefore,while the cost of retained earnings is not zero,its cost is generally lower than the after-tax cost of debt.
• B) The capital structure that minimizes a firm's weighted average cost of capital is also the capital structure that maximizes its stock price.
• C) The capital structure that minimizes the firm's weighted average cost of capital is also the capital structure that maximizes its earnings per share.
• D) If a firm finds that the cost of debt is less than the cost of equity,increasing its debt ratio must reduce its WACC.
• E) Other things held constant,if corporate tax rates declined,then the Modigliani-Miller tax-adjusted theory would suggest that firms should increase their use of debt.

---

Definitions:

Philosophy

The investigation into the essential characteristics of understanding, the real world, and being.

Interrelated Ideas

Concepts, thoughts, or topics that are connected or linked to each other in a significant manner.

Theory

A systematically organized set of concepts, explanations, and predictions about phenomena that seeks to clarify relationships or understand principles.

Observation

The active acquisition of information from a primary source using the senses or instruments that extend beyond natural sensory capabilities.