Which of the Following Statements Is CORRECT

question 43

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 a company to increase its debt ratio.
• D) Since debt financing raises the firm's financial risk, increasing a
• Company's debt ratio will always increase its WACC.
• E) Since debt is cheaper than equity, increasing a company's debt ratio will always reduce its WACC.

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