Which of the Following Statements Is Correct, Other Things Held

question 30

Multiple Choice

Which of the following statements is correct, other things held constant?

• A) Firms whose assets are relatively liquid tend to have relatively low bankruptcy costs; hence, they tend to use relatively little debt.
• B) An increase in the personal tax rate is likely to increase the debt ratio of the average corporation.
• C) An increase in the company's degree of operating leverage is likely to encourage a company to use more debt in its capital structure.
• D) An increase in the corporate tax rate is likely to encourage a company to use more debt in its capital structure.

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Definitions:

Perpetual Inventory

A method used in inventory accounting that immediately notes the sale or acquisition of inventory through computerized point-of-sale systems and enterprise asset management software.

Inventory Accounting Systems

Methods used by companies to keep track of their inventory levels, costs, and value, including systems like FIFO, LIFO, and weighted average.

Inventory Valuation

The method or process of calculating the cost/value of inventory that a business holds at any given time, which affects cost of goods sold and profitability.

Merchandising Company

A business entity that purchases finished goods and resells them to consumers to earn a profit without altering the physical form of the goods.