Which of the Following Statements Is CORRECT

question 59

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 tradeoff 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 make bankruptcy less costly to corporations, then this would likely reduce the debt ratio of the average corporation.

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Definitions:

Other Income

Revenue from non-core business activities, including interest, dividends, or any other non-operational income sources.

Trading Investments

Trading investments refer to securities bought and held primarily for selling in the short term to profit from their price fluctuations.

Comprehensive Income

The total change in equity for a business enterprise during a period from transactions and other events from non-owner sources, including all non-owner changes in equity.