Which of the Following Statements Is CORRECT

question 2

Multiple Choice

Which of the following statements is CORRECT?

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

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Definitions:

Time-Consuming

Activities or processes that require a significant amount of time to complete, often implying inefficiency or labor intensity.

Real-World Complications

Challenges or issues that arise in practical situations outside of controlled or theoretical environments.

Analytical Models

Mathematical or simulation models that use analytical methods to solve complex problems or make predictions by analyzing various data inputs.

Time Compression

Speeding up processes or activities to reduce their duration, without sacrificing quality, often achieved through more efficient methods, technologies, or resource allocations.