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:

Unification

The process of making or becoming united or whole, often referring to the consolidation of territories, organizations, or rules into a single entity.

International Monetary Fund (IMF)

Organization created to promote trade, eliminate barriers, and make short-term loans to member nations that are unable to meet their budgets.

Financial Cooperation

Collaboration among businesses, governments, or countries to achieve common financial goals or manage financial risks.

WTO

The World Trade Organization, an intergovernmental organization which regulates international trade.