Which of the Following Statements Is CORRECT

question 57

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 a relatively 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.
• E) Suppose a firm has less than its optimal amount of debt.Increasing its use of debt to the point where it is at its optimal capital structure will decrease the costs of both debt and equity.

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Definitions:

Responsibility

An obligation or duty to perform or complete a task or role, usually with accountability for the outcome.

Hierarchy

A system or organization in which people or groups are ranked one above the other according to status or authority.

Organizational Subsystem

A division or unit within an organization that has its specific role and functions contributing to the overall objectives.

Boundary-Spanning

Activities and practices by individuals or units within an organization that interact with and adapt to external environments and stakeholders.