Which of the Following Statements Is CORRECT

question 19

Multiple Choice

Which of the following statements is CORRECT?

• A) WACC calculations should be based on the before-tax costs of all the individual capital components.
• B) Flotation costs associated with issuing new common stock normally reduce the WACC.
• C) If a company's tax rate increases, then, all else equal, its weighted average cost of capital will decline.
• D) An increase in the risk-free rate will normally lower the marginal costs of both debt and equity financing.
• E) A change in a company's target capital structure cannot affect its WACC.

Comprehend the importance and methodology of comparative financial statement analysis, including horizontal, vertical, and trend analyses.

Grasp the concept and financial implications of discontinued operations and their impact on income statements.

Develop the ability to calculate and analyze inventory turnover to assess inventory management effectiveness.

Acquire knowledge on how to compute and interpret the times interest earned ratio to evaluate a company's ability to meet its debt obligations.

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Definitions:

Clayton Act

A U.S. antitrust law, enacted in 1914, aimed at promoting fair competition and preventing monopolies by restricting certain types of anti-competitive practices.

Herfindahl-Hirschman Index

A measure used to determine the level of concentration in a market, calculated by summing the squares of the market share percentages of all firms within the industry.

Antitrust Division

A government division responsible for enforcing laws to promote competition and prevent monopolies and other activities that restrain trade.

Moderately Concentrated

Describes an industry structure where a few firms occupy a significant portion of the market share but not to the extent of creating a monopoly or oligopoly.