Which of the Following Statements Is CORRECT

question 13

Multiple Choice

Which of the following statements is CORRECT?

• A) The capital structure that maximizes the stock price is also the capital structure that maximizes earnings per share.
• B) The capital structure that maximizes the stock price is also the capital structure that maximizes the firm's times interest earned (TIE)ratio.
• C) Increasing a company's debt ratio will typically reduce the marginal costs of both debt and equity financing; however, this still may raise the company's WACC.
• D) 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.
• E) The capital structure that maximizes the stock price is also the capital structure that minimizes the weighted average cost of capital (WACC).

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Definitions:

Marginal Utility

The change in total satisfaction or pleasure derived from consuming one more unit of a good or service.

Total Utility

The overall satisfaction or benefit a customer receives from consuming a particular good or service.

Marginal Utility

The increased happiness or usefulness gained by consuming an additional unit of a good or service.

Total Utility

The total satisfaction received from consuming a particular quantity of a good or service.