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:

Universal Donor

Refers to a person with O negative blood type, whose blood can be transfused into persons of any other blood type in emergency situations.

Type O

A blood group in the ABO system characterized by the absence of A and B antigens on red cells and the presence of anti-A and anti-B antibodies in the plasma.

Universal Recipient

An individual with Type AB positive blood, who in theory can receive blood of any type in transfusions due to the absence of anti-A or anti-B antibodies.

Type AB

A blood group in the ABO blood type system characterized by the presence of both A and B antigens on the surface of red blood cells.