Which One of the Following Statements Is Correct? Assume the Pretax

question 98

Multiple Choice

Which one of the following statements is correct? Assume the pretax cost of debt is less than the cost of equity.

• A)A firm may change its capital structure if the government changes its tax policies.
• B)A decrease in the dividend growth rate increases the cost of equity.
• C)A decrease in the systematic risk of a firm will increase the firm's cost of capital.
• D)A decrease in a firm's debt-equity ratio will decrease the firm's cost of capital.
• E)The cost of preferred stock decreases when the tax rate increases.

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Definitions:

Diaphragm

A muscular partition separating the thorax from the abdomen, playing a major role in breathing.

Pancreas

An organ with vital roles in both the endocrine and digestive systems, secreting insulin and digestive enzymes.

Spleen

An organ located under the ribcage and above the stomach that filters blood, stores red blood cells and platelets, and produces white blood cells.