Which of the Following Statements Is CORRECT

question 65

Multiple Choice

Which of the following statements is CORRECT?

• A) The tax-adjusted cost of debt is always greater than the interest rate on debt, provided the company does in fact pay taxes.
• B) If a company assigns the same cost of capital to all of its projects regardless of each project's risk, then the company is likely to reject some safe projects that it actually should accept and to accept some risky projects that it should reject.
• C) Because no flotation costs are required to obtain capital as reinvested earnings, the cost of reinvested earnings is generally lower than the after-tax cost of debt.
• D) Higher flotation costs tend to reduce the cost of equity capital.
• E) Since debt capital can cause a company to go bankrupt but equity capital cannot, debt is riskier than equity, and thus the after-tax cost of debt is always greater than the cost of equity.

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Definitions:

DNS Server

A server that translates human-friendly domain names into IP addresses, allowing browsers to load internet resources.

IP Address

Internet Protocol Address, a unique string of numbers and periods that identifies each computer communicating over a network.

Web Server

A computer configured to provide web-based content that is accessed through a web browser.

Escalate

In a support or service context, to transfer a problem or complaint to a higher level of authority or expertise for resolution.