Which of the Following Statements Is CORRECT

question 4

Multiple Choice

Which of the following statements is CORRECT?

• A) There is no reason to think that changes in the personal tax rate would affect firms' capital structure decisions.
• B) A firm with high business risk is more likely to increase its use of financial leverage than a firm with low business risk, assuming all else equal.
• C) If a firm's after-tax cost of equity exceeds its after-tax cost of debt, it can always reduce its WACC by increasing its use of debt.
• D) Suppose a firm has less than its optimal amount of debt.Increasing its use of debt to the point where it is at its optimal capital structure will decrease the costs of both debt and equity financing.
• E) In general, a firm with low operating leverage also has a small proportion of its total costs in the form of fixed costs.

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Definitions:

Independent Sample

Samples that are collected in such a way that the selection of one sample does not influence the selection of another, ensuring that observations between samples are not related.

Normally Distributed

Describes a probability distribution that is symmetric about the mean, showing that data near the mean are more frequent in occurrence than data far from the mean.

Confidence Interval Estimate

A range of values, derived from sample statistics, used to estimate the true value of a population parameter.

Two Normally Distributed Populations

Refers to two groups or populations where the data points follow a normal distribution, with specific means and standard deviations.