Which of the Following Statements Is CORRECT

question 93

Multiple Choice

Which of the following statements is CORRECT?

• A) The capital structure that maximizes the stock price is also the capital structure that maximizes earnings per share.
• B) The capital structure that maximizes the stock price is also the capital structure that maximizes the firm's times interest earned (TIE) ratio.
• C) Increasing a company's debt ratio will typically reduce the marginal costs of both debt and equity financing; however, this still may raise the company's WACC.
• D) If Congress were to pass legislation that increases the personal tax rate but decreases the corporate tax rate, this would encourage companies to increase their debt ratios.
• E) The capital structure that maximizes the stock price is also the capital structure that minimizes the weighted average cost of capital (WACC).

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Definitions:

Competitive Market

A competitive market is a market structure characterized by many buyers and sellers, such that no single participant has significant influence over the price of products or services.

Isocost Curve

An isocost curve represents all combinations of inputs which result in the same total cost for a firm, essentially showing the trade-offs between different types of inputs while maintaining the same budget.

Wage Rate

The amount of money paid to an employee per unit of time worked, often expressed per hour or year.

Rental Cost

The price paid for the temporary use of a good, service, or property owned by another party.