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:

Microeconomics

The part of economics concerned with (1) decision making by individual units such as a household, a firm, or an industry and (2) individual markets, specific goods and services, and product and resource prices.

Economic Units

Entities such as individuals, households, and firms that make decisions about the allocation of resources and the consumption of goods and services.

Economic System

The organized way a society allocates its resources and apportions goods and services in the national community.

Normative Economics

The branch of economics that applies value judgments to data to recommend actions or policies, focusing on what ought to be rather than what is.