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.

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Definitions:

Useful Life

Refers to the estimated duration an asset is expected to remain functional and useful for its intended purpose before it requires replacement.

Indefinite Time

Indefinite Time indicates a period without a specified end date.

Research Costs

Expenditures related to activities undertaken to gain new knowledge or understanding to develop new products, processes, or services; often a significant part of a company's innovation efforts.