Which of the Following Statements Is CORRECT

question 68

Multiple Choice

Which of the following statements is CORRECT?

• A) As a rule,the optimal capital structure is found by determining the debt-equity mix that maximizes expected EPS.
• B) The optimal capital structure simultaneously maximizes EPS and minimizes the WACC.
• C) The optimal capital structure minimizes the cost of equity,which is a necessary condition for maximizing the stock price.
• D) The optimal capital structure simultaneously minimizes the cost of debt,the cost of equity,and the WACC.
• E) The optimal capital structure simultaneously maximizes the stock price and minimizes the WACC.

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Definitions:

Spearman Rank-Order

A nonparametric method for evaluating rank correlation which determines how accurately a monotonic function can depict the relationship between two variables.

P Value

A measure in statistical hypothesis testing representing the probability of obtaining a result at least as extreme as the one observed, assuming the null hypothesis is true.

Positive Relationship

A relationship between two variables where as one variable increases, the other variable also increases or as one decreases, the other also decreases.

Two-Tailed

A two-tailed test in statistics is used when the area under consideration is on both sides of the distribution, testing for any significant difference without specifying direction.