Which of the Following Statements Is Correct

question 7

Multiple Choice

Which of the following statements is correct?

• A) In general, a firm with low operating leverage also has a small proportion of its total costs in the form of fixed costs.
• B) There is no reason to think that changes in the personal tax rate would affect firms' capital structure decisions.
• C) A firm with high business risk is more likely to increase its use of financial leverage than a firm with low business risk, assuming all else equal.
• D) If a firm's after-tax cost of equity exceeds its after-tax cost of debt, it can always reduce its WACC by increasing its use of debt.

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Definitions:

Nearly Efficient Markets

Markets where prices reflect all available information to some degree but may not always be perfectly efficient.

Portfolio Managers

Investment management professionals who select and manage a mixture of investments in order to meet specified investment goals for the benefit of their clients.

Market

The arena in which buyers and sellers engage in the exchange of goods, services, or financial instruments.

Selection Bias

A distortion in statistical analysis resulting from the method of collecting samples, leading to an inaccurate representation of the population being studied.