Which Statement Is True

question 16

Multiple Choice

Which statement is true?

• A)An increase in the market value of preferred stock will increase a firm's weighted average cost of capital.
• B)The cost of preferred stock is unaffected by the issuer's tax rate.
• C)Preferred stock is generally the cheapest source of capital for a firm.
• D)The cost of preferred stock remains constant from year to year.
• E)Preferred stock is valued using the capital asset pricing model.

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Definitions:

Gross Profit Ratio

A profitability ratio calculated as gross profit divided by net sales, indicating the percentage of sales revenue that exceeds the cost of goods sold.

Average Cost

A method for inventory valuation that calculates the cost of goods sold and ending inventory based on the average cost of all items purchased.

Retail Inventory Method

An accounting process used by retailers to estimate inventory value by converting the retail value of inventory to a cost basis, based on the relationship between cost and retail price.

Ending Inventory

The value of goods available for sale at the end of an accounting period.