Which of the Following Statements Is CORRECT

question 32

Multiple Choice

Which of the following statements is CORRECT?

• A)The capital structure that maximizes the stock price is also the capital structure that minimizes the cost of equity from retained earnings (r_s).
• B)The capital structure that maximizes the stock price is also the capital structure that maximizes earnings per share.
• C)The capital structure that maximizes the stock price is also the capital structure that maximizes the firm's times interest earned (TIE) ratio.
• D)If a company increases its debt ratio, this will typically increase the marginal costs of both debt and equity, but it still may reduce the company's WACC.
• E)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.

---

Definitions:

Liquidated Damages

refers to a predetermined sum agreed upon by the parties to a contract, to be paid as compensation in case of breach of contract.

Exemption Clause

A contract term that attempts to limit or exclude liability for certain events or damages.

Deposit Forfeiture

A legal or contractual process wherein a deposit made as part of a transaction is lost due to non-compliance with the terms of the agreement.

Exemption Clause

A contractual term that limits or excludes one party's liability for certain breaches, circumstances, or events.