Which of the Following Statements Is CORRECT

question 18

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 return on invested capital.(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 return on invested capital.

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Definitions:

Direct Materials

Raw materials that are directly traceable to the production of specific goods or services.

Yards

A measurement unit equal to three feet or 0.9144 meters, often used in expressing lengths or distances.

Factory Overhead Cost Budget

A budget that estimates the cost for each item of factory overhead needed to support budgeted production.

Total Variable Cost

The sum of all costs that vary directly with the level of production, including materials and direct labor.