Which of the Following Statements Is CORRECT

question 36

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:

Feel Anxious

Experiencing feelings of worry, unease, or nervousness, typically about an imminent event or something with an uncertain outcome.

Defensive Self-esteem

A form of self-esteem characterized by fragility and vulnerability, often dependent on external validation and defensive in the face of criticism.

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