Which of the Following Statements Is CORRECT

question 57

Multiple Choice

Which of the following statements is CORRECT?

• A) In general,a firm with low operating leverage also has a small proportion of its total costs in the form of fixed costs.
• B) There is no reason to think that changes in the personal tax rate would affect firms' capital structure decisions.
• C) A firm with a relatively high business risk is more likely to increase its use of financial leverage than a firm with low business risk,assuming all else equal.
• D) If a firm's after-tax cost of equity exceeds its after-tax cost of debt,it can always reduce its WACC by increasing its use of debt.
• E) Suppose a firm has less than its optimal amount of debt.Increasing its use of debt to the point where it is at its optimal capital structure will decrease the costs of both debt and equity.

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Definitions:

Medicare

A federal health insurance program in the United States for people aged 65 and older, as well as for some younger people with disabilities.

Social Security System

A government program that provides financial assistance to people with insufficient or no income, typically covering the elderly, disabled, and unemployed.

Unemployment Compensation

A state government transfer program that pays cash benefits for a certain period of time to laid-off workers who have worked for a specified period of time for a covered employer.

Assistance Program

A governmental or organizational initiative designed to provide support, financial or otherwise, to individuals or groups in need.