Which of the Following Statements Is CORRECT

question 51

Multiple Choice

Which of the following statements is CORRECT?

• A)Increasing financial leverage is one way to increase a firm's basic earning power (BEP).
• B)If a firm lowered its fixed costs while increasing its variable costs, holding total costs at the present level of sales constant, this would decrease its operating leverage.
• C)The debt ratio that maximizes EPS generally exceeds the debt ratio that maximizes share price.
• D)If a company were to issue debt and use the money to repurchase common stock, this action would have no impact on its basic earning power ratio.(Assume that the repurchase has no impact on the company's operating income.)
• E)If changes in the bankruptcy code made bankruptcy less costly to corporations, this would likely reduce the average corporation's debt ratio.

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Definitions:

Labor-Capital Ratio

The ratio of labor inputs to capital inputs in production, reflecting the relationship between the workforce and machinery or capital assets.

Physical Capital

The stock of tangible assets, like machinery, buildings, and vehicles, used in the production of goods and services.

Labor Productivity

An economic indicator that assesses how many goods and services are produced in comparison to the total hours worked to produce them.

Total Employment

The total number of individuals currently employed in the economy, both full-time and part-time.