Which of the Following Statements Is CORRECT

question 66

Multiple Choice

Which of the following statements is CORRECT?

• A) The capital structure that minimizes a firm's weighted average cost of capital is also the capital structure that maximizes its stock price.
• B) The capital structure that minimizes the firm's weighted average cost of capital is also the capital structure that maximizes its earnings per share.
• C) If a firm finds that the cost of debt is less than the cost of equity, increasing its debt ratio must reduce its WACC.
• D) Other things held constant, if corporate tax rates declined, then the Modigliani-Miller tax-adjusted tradeoff theory would suggest that firms should increase their use of debt.
• E) A firm can use retained earnings without paying a flotation cost.Therefore, while the cost of retained earnings is not zero, its cost is generally lower than the after-tax cost of debt.

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Definitions:

Herzberg

Refers to Frederick Herzberg, an American psychologist best known for the Motivation-Hygiene Theory, which suggests that certain factors in the workplace lead to job satisfaction while a separate set of factors cause dissatisfaction.

Job Security

A condition in which an individual has a high likelihood of remaining employed without the risk of becoming unemployed.

Recognition

The act of acknowledging or identifying something as valid or as having a particular status.

Advancement

The process of moving forward in one's career, which may involve a higher position, increased responsibilities, or better salary.