Which of the Following Statements Is Correct

question 27

Multiple Choice

Which of the following statements is correct?

• A) If corporate tax rates were decreased while other things were held constant, and if the Modigliani-Miller tax-adjusted trade-off theory of capital structure were correct, this would tend to cause corporations to decrease their use of debt.
• B) A change in the personal tax rate should not affect firms' capital structure decisions.
• C) "Business risk" is differentiated from "financial risk" by the fact that financial risk reflects only the use of debt, while business risk reflects both the use of debt and such factors as sales variability, cost variability, and operating leverage.
• D) The optimal capital structure is the one that simultaneously (1) maximizes the price of the firm's stock, (2) minimizes its WACC, and (3) maximizes its EPS.

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Definitions:

Promotional Strategy

A marketing approach that combines various communication tools and tactics to increase awareness, create interest, and drive sales of a product or service.

Devalue

To reduce or underestimate the importance, value, or worth of something or someone, often affecting perception and market positioning.

Brand Recognition

The extent to which consumers can correctly identify a brand or its products by visual or auditory cues rather than the brand name itself.

Social Media

Online platforms where people can create content, share it, interact, and connect with others.