Which of the Following Statements Is CORRECT

question 37

Multiple Choice

Which of the following statements is CORRECT?

• A) When a company increases its debt ratio,the costs of equity and debt both increase.Therefore,the WACC must also increase.
• B) The capital structure that maximizes the stock price is generally the capital structure that also maximizes earnings per share.
• C) All else equal,an increase in the corporate tax rate would tend to encourage companies to increase their debt ratios.
• D) Since debt financing raises the firm's financial risk,increasing a company's debt ratio will always increase its WACC.
• E) Since the cost of debt is generally fixed,increasing the debt ratio tends to stabilize net income.

---

Definitions:

Annual Cash Flows

The total amount of money being transferred into and out of a business over one year.

Required Rate

This term might be understood in different contexts; however, in finance, it often refers to the minimum return that investors expect to earn on an investment.

Transistor

A semiconductor device used to amplify or switch electronic signals, forming the foundation of modern electronic devices.

Output Terminal

The point in an electrical device or circuit where output is taken out or transferred to another circuit or component.