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.
Answer: A
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Juan transferred 100 percent of his stock in Rosa Company to Azul Corporation in a Type B stock-for-stock exchange. In exchange, he received stock in Azul with a fair market value of $1,000,000. Juan's tax basis in the Rosa stock was $400,000. What amount of gain does Juan recognize in the exchange and what is his basis in the Azul stock he receives?
A. $600,000 gain recognized and a basis in Azul stock of $400,000. B. No gain recognized and a basis in Azul stock of $1,000,000. C. $600,000 gain recognized and a basis in Azul stock of $1,000,000. D. No gain recognized and a basis in Azul stock of $400,000.
The board of directors consists entirely of personal friends of the chief executive officer. This indicates a weakness in
a. the accounting system b. the control environment c. control procedures d. this is not a weakness
If the client was pleased with the research project and report, there is no need for the researcher to evaluate the research project
Indicate whether the statement is true or false
Which of the following is the means by which companies post purchase requests online and invite suppliers to bid for their business?
A) extranet links B) intranet connections C) trading exchanges D) traditional procurement E) reverse auctions