Which of the Following Statements Is CORRECT

question 56

Multiple Choice

Which of the following statements is CORRECT?

• A) The capital structure that minimizes the interest rate on debt also maximizes the expected EPS.
• B) The capital structure that minimizes the required return on equity also maximizes the stock price.
• C) The capital structure that minimizes the WACC also maximizes the price per share of common stock.
• D) The capital structure that gives the firm the best credit rating also maximizes the stock price.
• E) The capital structure that maximizes expected EPS also maximizes the price per share of common stock.

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Definitions:

Monopoly

A market condition where a single firm has exclusive control over a product or service, eliminating competition.

Negative Externalities

Adverse effects suffered by a third party or the public as a result of an economic transaction or activity.

Principal-Agent Problem

At a firm, a conflict of interest that occurs when agents (workers or managers) pursue their own objectives to the detriment of the principals’ (stockholders’) goals. In public choice theory, a conflict of interest that arises when elected officials (who are the agents of the people) pursue policies that are in their own interests rather than policies that would be in the better interests of the public (the principals).

Private Sector

The private sector encompasses businesses and entities that are not owned or operated by the government, operating primarily for profit.