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:

Verbal Commitment

An agreement or promise spoken rather than written, relying on the honor of the parties for its fulfillment.

Contract Is Signed

The formal agreement between parties becomes legally binding when all necessary signatures are affixed to the document.

Cash Flow From Assets

The total amount of money being transferred into and out of a company's assets, indicating the company's financial health and operational efficiency.

Operating Cash Flow

The cash generated by a company's normal business operations, reflecting its ability to generate sufficient cash to meet its needs.