Which of the Following Statements Is CORRECT

question 73

Multiple Choice

Which of the following statements is CORRECT?

• A) A change in the personal tax rate should not affect firms' capital structure decisions.
• B) "Business risk" is differentiated from "financial risk" by the fact that financial risk reflects only the use of debt, while business risk reflects both the use of debt and such factors as sales variability, cost variability, and operating leverage.
• C) The optimal capital structure is the one that simultaneously (1) maximizes the price of the firm's stock, (2) minimizes its WACC, and (3) maximizes its EPS.
• D) If changes in the bankruptcy code make bankruptcy less costly to corporations, then this would likely reduce the debt ratio of the average corporation.
• E) If corporate tax rates were decreased while other things were held constant, and if the Modigliani-Miller tax-adjusted tradeoff theory of capital structure were correct, this would tend to cause corporations to decrease their use of debt.

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Definitions:

Legalistic Fallacy

The incorrect assumption that legal changes directly translate to social change, overlooking the gap between the law and its practical implementation or societal acceptance.

Racial Segregation

Racial Segregation is the systematic separation of people into racial or other ethnic groups in daily life, including eating in restaurants, using public bathrooms, attending schools, and living in neighborhoods.

Unconstitutional

Describes actions, laws, or policies that are deemed to violate the principles or specific provisions of a country's constitution.

Individualistic Fallacy

The misconception that societal issues can be explained solely by individual actions and responsibilities, neglecting systemic or structural factors.