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:

Journal Entry

A Journal Entry is a record in bookkeeping that logs the debit and credit parts of a financial transaction in accounting.

Credits

Entries that increase liabilities or equity accounts, or decrease asset or expense accounts in accounting.

Wages Payable

An account that records the amounts owed to employees for work that has been performed but has not yet been paid.