Which of the Following Statements Is CORRECT

question 56

Multiple Choice

Which of the following statements is CORRECT?

• A) If a firm lowered its fixed costs while increasing its variable costs,holding total costs at the present level of sales constant,this would decrease its operating leverage.
• B) The debt ratio that maximizes EPS generally exceeds the debt ratio that maximizes share price.
• C) If a company were to issue debt and use the money to repurchase common stock,this action would have no impact on its basic earning power ratio.(Assume that the repurchase has no impact on the company's operating income. )
• D) If changes in the bankruptcy code made bankruptcy less costly to corporations,this would likely reduce the average corporation's debt ratio.
• E) Increasing financial leverage is one way to increase a firm's basic earning power (BEP).

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Definitions:

Depreciation

A systematic reduction in the recorded value of a fixed asset, recognizing wear and tear over time.

Estimated Life

The expected period over which an asset is useful to the owning entity, affecting calculations like depreciation.

Residual Value

The anticipated financial return of an asset at the time of its disposal following the end of its usefulness.

Net Book Value

The net value of an asset after accounting for depreciation or amortization.