Which of the Following Statements Is Correct

question 25

Multiple Choice

Which of the following statements is correct?

• A) "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.
• B) If corporate tax rates were decreased while other things were held constant,and if the Modigliani-Miller tradeoff theory of capital structure were correct,then corporations should tend to increase their use of debt.
• C) If corporate tax rates were decreased while other things were held constant,and if the Modigliani-Miller tradeoff theory of capital structure were correct,then corporations should tend to decrease their use of debt.
• D) The optimal capital structure is the one which (1)maximizes the price of the firm's stock, (2)minimizes its WACC,and (3)maximizes its EPS.
• E) Statements b and d are both correct.

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Definitions:

100% Efficiency

A theoretical situation where all resources are utilized to their maximum capacity without any waste, often used as a benchmark or target in productivity and operations management.

Variances

Differences between planned figures and actual performance or results, often analyzed in budgets and standard costing.

Production Costs

The total cost incurred by a company to manufacture a product or offer a service, including raw materials, labor, and overhead expenses.

Management

The method of strategizing, structuring, guiding, and managing resources to accomplish particular objectives.