Which of the Following Statements Is CORRECT

question 37

Multiple Choice

Which of the following statements is CORRECT?

• A) When a company increases its debt ratio,the costs of equity and debt both increase.Therefore,the WACC must also increase.
• B) The capital structure that maximizes the stock price is generally the capital structure that also maximizes earnings per share.
• C) All else equal,an increase in the corporate tax rate would tend to encourage companies to increase their debt ratios.
• D) Since debt financing raises the firm's financial risk,increasing a company's debt ratio will always increase its WACC.
• E) Since the cost of debt is generally fixed,increasing the debt ratio tends to stabilize net income.

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