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 tradeoff theory would suggest
That firms should increase their use of debt.

Question

Quizplus · Accepted Answer

The Answer of 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 tradeoff theory would suggest
That firms should increase their use of debt.

Which of the Following Statements Is CORRECT