Which of the Following Statements Is CORRECT

question 71

Multiple Choice

Which of the following statements is CORRECT?

• A) 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.
• B) The capital structure that minimizes a firm's weighted average cost of capital is also the capital structure that maximizes its stock price.
• C) The capital structure that minimizes the firm's weighted average cost of capital is also the capital structure that maximizes its earnings per share.
• D) If a firm finds that the cost of debt is less than the cost of equity,increasing its debt ratio must reduce its WACC.
• E) Other things held constant,if corporate tax rates declined,then the Modigliani-Miller tax-adjusted theory would suggest that firms should increase their use of debt.

---

Definitions:

Managerial Accounting

This branch of accounting focuses on providing information to managers within an organization to aid in decision-making and financial management.

Entity

In accounting and finance, an entity refers to any organization, company, or individual that has a distinct existence for legal or tax purposes.

Highly Aggregated

A term describing data that has been compiled into large groups or categories, often to provide a broad overview.

Managerial Accounting

The process of identifying, measuring, analyzing, interpreting, and communicating financial information to managers for pursuing an organization's goals.