Which of the Following Statements Is CORRECT

question 61

Multiple Choice

Which of the following statements is CORRECT?

• A) If Congress lowered corporate tax rates while other things were held constant,and if the Modigliani-Miller tax-adjusted 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.
• E) If changes in the bankruptcy code made bankruptcy less costly to corporations,this would likely reduce the average corporation's debt ratio.

Analyze the role of accounting rate of return (ARR) and how it differs from cash flow-based evaluation methods.

Recognize the implications of using different depreciation methods on investment appraisal.

Understand the concept of hurdle rate and its significance in capital budgeting decisions.

Grasp the risk factors associated with capital budgeting decisions and how they impact the project's selection.

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Definitions:

Coughing Vigorously

Forceful exhalation through the airways aimed at clearing them of irritants, mucus, or foreign particles.

Abdominal Thrusts

An emergency procedure to expel foreign objects from the airway of a choking victim, also known as the Heimlich maneuver.

Shoulder Blades

The flat, triangular bones located on the back of the shoulders, known anatomically as scapulae.

Child Wading Pool

A shallow pool designed for young children to play in under supervision, often portable and made of plastic.