Which of the Following Statements Is CORRECT

question 2

Multiple Choice

Which of the following statements is CORRECT?

• A) The capital structure that maximizes the stock price is generally the capital structure that also maximizes earnings per share.
• B) All else equal, an increase in the corporate tax rate would tend to encourage a company to increase its debt ratio.
• C) Since debt financing raises the firm's financial risk, increasing a company's debt ratio will always increase its WACC.
• D) Since debt is cheaper than equity, increasing a company's debt ratio will always reduce its WACC.
• E) When a company increases its debt ratio, the costs of equity and debt both increase.Therefore, the WACC must also increase.

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Definitions:

Productivity

A measure of the efficiency of a person, machine, factory, system, etc., in converting inputs into useful outputs.

Extrinsic Benefits

Advantages or rewards received from an activity that are external to the activity itself, such as money, grades, or recognition.

Self-Efficacy

An individual's belief in their own capability to execute behaviors necessary to produce specific performance attainments.

Job Security

The probability or likelihood that an individual will retain his or her job or employment position without involuntary separation.