Which of the following statements is correct?
A)When financial leverage is used, the graphical probability distribution of net income would tend to be more peaked than a distribution where no leverage is present, other things held constant.
B)From an operational standpoint the goal of maintaining financial flexibility translates into maintaining adequate reserve borrowing capacity.
C)While business risk varies form one industry to another and can change over time, it affects all firms equally within a particular industry.
D)The optimal capital structure is the one that maximizes EBIT, and this always calls for a debt ratio which is lower than the one that maximizes expected EPS.
E)The above statements are all false.

Question

Quizplus · Accepted Answer

From an operational standpoint, maintaining financial flexibility means keeping enough borrowing capacity available. This enables the company to raise money quickly in case of unforeseen circumstances, helping maintain financial stability. The other statements are either incorrect or incomplete.

Which of the Following Statements Is Correct