Which of the Following Statements Is CORRECT

question 93

Multiple Choice

Which of the following statements is CORRECT?

• A) The capital structure that maximizes the stock price is also the capital structure that maximizes earnings per share.
• B) The capital structure that maximizes the stock price is also the capital structure that maximizes the firm's times interest earned (TIE) ratio.
• C) Increasing a company's debt ratio will typically reduce the marginal costs of both debt and equity financing; however, this still may raise the company's WACC.
• D) If Congress were to pass legislation that increases the personal tax rate but decreases the corporate tax rate, this would encourage companies to increase their debt ratios.
• E) The capital structure that maximizes the stock price is also the capital structure that minimizes the weighted average cost of capital (WACC).

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Definitions:

Debit Balance

An account balance where total debits exceed total credits.

Debit

An accounting entry that increases an asset or expense account, or decreases a liability or equity account, used in double-entry bookkeeping.

Credit

An accounting entry that either increases a liability or equity account, or decreases an asset or expense account.

Decrease

A reduction in the size, amount, or rate of something.