Which of the Following Statements Is CORRECT

question 57

Multiple Choice

Which of the following statements is CORRECT?

• A) In general,a firm with low operating leverage also has a small proportion of its total costs in the form of fixed costs.
• B) There is no reason to think that changes in the personal tax rate would affect firms' capital structure decisions.
• C) A firm with a relatively high business risk is more likely to increase its use of financial leverage than a firm with low business risk,assuming all else equal.
• D) If a firm's after-tax cost of equity exceeds its after-tax cost of debt,it can always reduce its WACC by increasing its use of debt.
• E) Suppose a firm has less than its optimal amount of debt.Increasing its use of debt to the point where it is at its optimal capital structure will decrease the costs of both debt and equity.

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Definitions:

Real National Output

The total value of all goods and services produced by a country over a specific time period, adjusted for inflation.

AS Curve

Short for Aggregate Supply Curve, it represents the total supply of goods and services that firms in an economy are willing and able to produce at different price levels.

Price Level

A measure of the average prices of goods and services in an economy, which indicates the purchasing power of a country's currency.

Classical Model

An economic model based on the principles of self-regulating markets, where supply and demand are balanced through competitive market forces without government intervention.