Which of the Following Statements Is CORRECT

question 19

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 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 financing.

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Definitions:

Mortgage Loan

A loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty.

Down Payment

An initial, upfront payment made towards the purchase of a high-value item, like real estate or a vehicle, typically representing a percentage of the total purchase price.

Statute of Frauds

A legal principle that requires certain types of contracts to be written in order to be enforceable.

Mortgage

A secured loan where property is used as collateral for borrowing money, usually for purchasing real estate.