Which of the Following Statements Is CORRECT

question 2

Multiple Choice

Which of the following statements is CORRECT?

• A) The capital structure that maximizes the stock price is generally the capital structure that also maximizes earnings per share.
• B) All else equal, an increase in the corporate tax rate would tend to encourage a company to increase its debt ratio.
• C) Since debt financing raises the firm's financial risk, increasing a company's debt ratio will always increase its WACC.
• D) Since debt is cheaper than equity, increasing a company's debt ratio will always reduce its WACC.
• E) When a company increases its debt ratio, the costs of equity and debt both increase.Therefore, the WACC must also increase.