Which of the Following Statements Is Most Correct

question 22

Multiple Choice

Which of the following statements is most correct?

• A) A firm can use retained earnings without paying a flotation cost. Therefore, while the cost of retained earnings is not zero, the cost of retained earnings is generally lower than the after-tax cost of debt financing.
• B) The capital structure that minimizes the firm's cost of capital is also the capital structure that maximizes the firm's stock price.
• C) The capital structure that minimizes the firm's cost of capital is also the capital structure that maximizes the firm's earnings per share.
• D) If a firm finds that the cost of debt financing is currently less than the cost of equity financing, an increase in its debt ratio will always reduce its cost of capital.
• E) Statements a and b are correct.

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Definitions:

Supply Chain

A network connecting suppliers, manufacturers, and customers that facilitates the production, handling, and distribution of goods and services.

Profitability

The ability of a business to generate earnings above its expenses and investments, indicating the financial health and success of an entity.

Relationship

The way in which two or more concepts, objects, or people are connected, or the state of being connected.

Taco Capacity

The maximum number of tacos that can be produced, held, or consumed in a given timeframe or by a specific system or facility.