Which of the Following Statements Is CORRECT

question 56

Multiple Choice

Which of the following statements is CORRECT?

• A) 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.
• B) The debt ratio that maximizes EPS generally exceeds the debt ratio that maximizes share price.
• C) 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. )
• D) If changes in the bankruptcy code made bankruptcy less costly to corporations,this would likely reduce the average corporation's debt ratio.
• E) Increasing financial leverage is one way to increase a firm's basic earning power (BEP).

---

Definitions:

Reformation

A legal process to correct or modify a contract or document to accurately reflect the intended terms of the parties involved.

Uniform Commercial Code

A comprehensive set of laws governing commercial transactions in the United States, aiming to standardize legislation across states to facilitate easier commerce.

Terms

Conditions and stipulations agreed upon in a contract or agreement that define the obligations and rights of the parties involved.

Agreements

Contracts or arrangements made between two or more parties that are enforceable by law.