Which One of These Statements Is Correct

question 75

Multiple Choice

Which one of these statements is correct?

• A)There is no condition known to date whereby a corporation can increase firm value through the use of leverage.
• B)Corporations generally pay a lower cost on debt than do individuals due to their vast pool of liquid assets.
• C)If individuals pay a higher cost to borrow than corporations do,then corporations can increase firm value by borrowing.
• D)Margin accounts tend to be high interest rate sources of funds for individuals.
• E)Corporations can increase firm value by borrowing provided their interest rate on debt exceeds that paid by individuals.

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Definitions:

Capital Expenditures

Resources allocated by a business to procure, enhance, and sustain material assets like land, factory structures, or equipment.

Cash Dividends

Payments made out of a corporation's earnings to its shareholders, typically distributed as a fixed amount per share of stock.

Indirect Method

A way of preparing the cash flow statement where net income is adjusted for non-cash transactions and changes in working capital to calculate cash flow from operating activities.

Operating Activities

Business activities related to the day-to-day functions of a company involved in producing and delivering its products or services.