Which of the Following Statements Is Correct

question 56

Multiple Choice

Which of the following statements is correct?

• A)Suppose a firm is losing money and thus, is not paying taxes, and that this situation is expected to persist for a few years whether or not the firm uses debt financing.Then the firm's after-tax cost of debt will equal its before-tax cost of debt.
• B)The component cost of preferred stock is expressed as rps(1 − T), because preferred stock dividends are treated as fixed charges, similar to the treatment of debt interest.
• C)The reason that a cost of capital is assigned to retained earnings is because these funds are already earning a return in the business, the reason does not involve the opportunity cost principle.
• D)The bond-yield-plus-risk-premium approach to estimating a firm's cost of common equity involves adding a subjectively determined risk-premium to the market risk-free bond rate.
• E)None of the above is a correct statement.

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Definitions:

Low-Cost Producer

A business strategy aimed at becoming the most cost-efficient manufacturer in an industry to gain a competitive advantage.

High-Cost Producer

An entity that produces goods or services with higher operational costs compared to its competitors.

"Me Too" Strategy

A business approach where companies mimic successful products or services, aiming to capture a share of an established market.

Competitive Parity

A strategy in marketing where companies set their prices or budgets to match their competitors', aiming for a similar market position.