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:

Phenomena

Observable events or occurrences that are notable for their distinctive features, especially those which are scientifically interesting or challenging to explain.

Distribution

The process by which goods or services are made available to consumers or the manner in which a phenomenon is spread out or distributed across an area or population.

Cones

Photoreceptor cells in the retina of the eye responsible for color vision and visual acuity under bright light conditions.

Black and White Vision

A type of vision characterized by the perception of images in shades of black and white, typically referring to the functioning of rod cells in low-light conditions.