Which of the Following Statements Is Correct

question 3

Multiple Choice

Which of the following statements is correct?

• A)Capital components are the types of capital used by firms to raise money.All capital comes from one of three components: long-term debt, preferred stock, and equity.
• B)Preferred stock does not involve any adjustment for flotation cost since the dividend and price are fixed.
• C)The cost of debt used in calculating the WACC is an average of the after-tax cost of new debt and of outstanding debt.
• D)The opportunity cost principle implies that if the firm cannot invest retained earnings and earn at least rs, it should pay these funds to its stockholders and let them invest directly in other assets that do provide this return.
• E)The cost of new common equity includes an adjustment for flotation costs which is expressed as a fixed percentage of the current stock price.The flotation percentage is determined jointly by the current price of the firm's stock and its growth rate.

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Definitions:

Financial Statements

Financial statements are formal records of the financial activities and condition of a business, person, or other entity, providing an overview of a company's financial performance and position in the market.

Section 11

A provision of the Securities Act of 1933 that holds issuers liable for material misstatements or omissions in their public offering documents.

Securities Act of 1933

A U.S. law enacted to protect investors by requiring transparency in financial statements so investors can make informed decisions about investments.

Registration Statement

A legal document filed with the Securities and Exchange Commission by companies wishing to issue new securities to the public, containing financial and other significant details.