Which of the Following Statements Is CORRECT

question 42

Multiple Choice

Which of the following statements is CORRECT?

• A) The capital structure that maximizes the stock price is also the capital structure that minimizes the cost of equity from retained earnings (r_S).
• B) The capital structure that maximizes the stock price is also the capital structure that maximizes earnings per share.
• C) The capital structure that maximizes the stock price is also the capital structure that maximizes the firm's times interest earned (TIE)ratio.
• D) If a company increases its debt ratio,this will typically increase the marginal costs of both debt and equity,but it still may reduce the company's WACC.
• E) 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.

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Definitions:

Air Tanks

Reservoirs used in pneumatic systems of vehicles, especially in air brake systems, to store compressed air needed for the operation of brakes and other components.

Diversification

The strategy of spreading investments among different financial instruments, industries, or other categories to reduce risk.

Portfolio Risk

Describes the uncertainty or variability of returns associated with a portfolio of investments, highlighting the combined risk of individual assets.