Which of the Following Statements Is Correct

question 115

Multiple Choice

Which of the following statements is correct?

• A) When financial leverage is used,the graphical probability distribution of net income would tend to be more peaked than a distribution where no leverage is present,other things held constant.
• B) From an operational standpoint the goal of maintaining financial flexibility translates into maintaining adequate reserve borrowing capacity.
• C) While business risk varies from one industry to another and can change over time,it affects all firms equally within a particular industry.
• D) The optimal capital structure is the one that maximizes EBIT,and this always calls for a debt-to-assets ratio which is lower than the one that maximizes expected EPS.
• E) The above statements are all false.

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Definitions:

Budgeted Income Statement

A forecasted income statement showing projected revenues, expenses, and net income for a specific period.

Budgeted Balance Sheet

A financial statement projected for a future date, outlining the anticipated assets, liabilities, and equity based on planned operations and capital activities.

Budgeted Selling Price

The anticipated price at which a product is expected to be sold, as estimated during the budgeting process.

Budgeted Unit Sales

The projected quantity of units that a company plans to sell in a specified budget period, often used for financial planning and forecasting.