Which of the Following Statements Is CORRECT

question 11

Multiple Choice

Which of the following statements is CORRECT?

• A) Increasing its use of financial leverage is one way to increase a firm's return on investors' capital (ROIC).
• B) If a firm lowered its fixed costs but increased its variable costs by just enough to hold total costs at the present level of sales constant,this would increase its operating leverage.
• C) The debt ratio that maximizes expected EPS generally exceeds the debt ratio that maximizes share price.
• D) If a company were to issue debt and use the money to repurchase common stock,this would reduce its return on investors' capital (ROIC).(Assume that the repurchase has no impact on the company's operating income. )
• E) If a change in the bankruptcy code made bankruptcy less costly to corporations,this would tend to reduce corporations' debt ratios.

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Definitions:

Reasoning

The drawing of conclusions or inferences from observations, facts, or assumptions.

Framing

The way information is presented to users, which can influence decision-making and judgment by highlighting certain aspects while excluding others.

Reflective Judgment

The process of critically evaluating the validity of various propositions or hypotheses.

Prereflective Thinking

A level of cognition occurring without conscious awareness or reflection on the thought process itself.