Which of the Following Statements Is CORRECT

question 12

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 tradeoff theory would suggest that firms should increase their use of debt.

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Definitions:

Median

The middle value of a data set, which divides the set into two equal halves when arranged in ascending or descending order.

Pth Percentile

A value on a rank-ordered dataset below which a certain percentage (P) of observations fall.

Observations

Data collected during an experiment or research, representing the values or attributes of variables of interest.

Percent

A way to express a number as a fraction of 100, symbolized by the percent sign (%).