Which of the Following Statements Is CORRECT

question 70

Multiple Choice

Which of the following statements is CORRECT?

• A) The capital structure that maximizes the stock price is also the capital structure that minimizes the cost of equity from retained earnings (rs).
• B) The capital structure that maximizes the stock price is also the capital structure that maximizes earnings per share.
• C) The capital structure that maximizes the stock price is also the capital structure that maximizes the firm's times interest earned (TIE) ratio.
• D) If a company increases its debt ratio, this will typically increase the marginal costs of both debt and equity, but it still may reduce the company's WACC.
• E) If Congress were to pass legislation that increases the personal tax rate but decreases the corporate tax rate, this would encourage companies to increase their debt ratios.

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Definitions:

Egocentrism

In developmental psychology, it refers to the inability of children in the preoperational stage to see any point of view other than their own.

Cognitive Flexibility

The mental ability to switch between thinking about two different concepts, or to think about multiple concepts simultaneously.

Transductive Reasoning

A form of reasoning where conclusions are drawn based on specific examples or instances, rather than through abstract logic, prevalent in young children.

Class Inclusion

The principle that one category or class of things can include several subclasses.