Which of the Following Statements Is Correct

question 27

Multiple Choice

Which of the following statements is correct?

• A) If corporate tax rates were decreased while other things were held constant, and if the Modigliani-Miller tax-adjusted trade-off theory of capital structure were correct, this would tend to cause corporations to decrease their use of debt.
• B) A change in the personal tax rate should not affect firms' capital structure decisions.
• C) "Business risk" is differentiated from "financial risk" by the fact that financial risk reflects only the use of debt, while business risk reflects both the use of debt and such factors as sales variability, cost variability, and operating leverage.
• D) The optimal capital structure is the one that simultaneously (1) maximizes the price of the firm's stock, (2) minimizes its WACC, and (3) maximizes its EPS.

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Definitions:

Return Address Labels

Stickers or printed pieces of paper used to indicate the sender's address on mailed items.

Groupthink

A pattern of thinking that occurs when a cohesive group minimizes or ignores members’ differences of opinion.

Highly Cohesive

Describes a group, material, or entity that is united and works well together, showing a strong sense of togetherness or bond.

External Threat

A danger originating outside an organization or individual, potentially causing harm or disruption.