Which of the Following Statements Is CORRECT

question 64

Multiple Choice

Which of the following statements is CORRECT?

• A)When a company increases its debt ratio, the costs of equity and debt both increase.Therefore, the WACC must also increase.
• B)The capital structure that maximizes the stock price is generally the capital structure that also maximizes earnings per share.
• C)All else equal, an increase in the corporate tax rate would tend to encourage a company to increase its debt ratio.
• D)Since debt financing raises the firm's financial risk, increasing a company's debt ratio will always increase its WACC.
• E)Since debt is cheaper than equity, increasing a company's debt ratio will always reduce its WACC.

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Definitions:

Persuasion Routes

The methods or approaches used to change people's attitudes or behaviors, typically categorized as central and peripheral routes.

Direct Route

The most straightforward or shortest path from one point to another without detours or interruptions.

Source Persuasiveness

relates to the effectiveness and credibility of a communicator in influencing the beliefs, attitudes, or behaviors of others.

Product Endorsers

Individuals, often celebrities or experts, who promote a product or brand by recommending it or associating their image with it.