Which of the Following Statements Is CORRECT

question 6

Multiple Choice

Which of the following statements is CORRECT?

• A) The capital structure that minimizes a firm's weighted average cost of capital is also the capital structure that maximizes its stock price.
• B) The capital structure that minimizes the firm's weighted average cost of capital is also the capital structure that maximizes its earnings per share.
• C) If a firm finds that the cost of debt is less than the cost of equity, increasing its debt ratio must reduce its WACC.
• D) Other things held constant, if corporate tax rates declined, then the Modigliani-Miller tax-adjusted tradeoff theory would suggest that firms should increase their use of debt.
• E) A firm can use retained earnings without paying a flotation cost.Therefore, while the cost of retained earnings is not zero, its cost is generally lower than the after-tax cost of debt.

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Definitions:

Empirical Evidence

Information acquired by observation or experimentation that is used to confirm or disprove a hypothesis or theory.

Pseudoscientific Relatives

Concepts or theories that are claimed to be scientific but lack empirical evidence and adherence to the scientific method.

Critical Thinking

The objective analysis and evaluation of an issue in order to form a judgment, often involving questioning assumptions and identifying biases.

Commonsense Statements

Assertions or beliefs that are widely held and considered to be self-evidently true without need for proof.