Which of the Following Statements Is Correct

question 33

Multiple Choice

Which of the following statements is correct?

• A)Because we often need to make comparisons among firms that are in different income tax brackets, it is best to calculate the WACC on a before-tax basis.
• B)If a firm has been suffering accounting losses and is expected to continue suffering such losses (and we then assume that its tax rate going forward is zero), it is possible that its after-tax component cost of preferred stock as used to calculate the WACC will be less than its after-tax component cost of debt.
• C)Due to the way the MCC is constructed, the first break point in the MCC schedule must be associated with using up all available retained earnings and having to issue common stock.
• D)Normally, the cost of external equity raised by issuing new common stock is above the cost of retained earnings.Moreover, the higher the growth rate relative to the dividend yield, the more the cost of external equity will exceed the cost of retained earnings.
• E)None of the above is a correct statement.

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Definitions:

Integrative Negotiation

A negotiation approach aimed at finding mutually beneficial solutions by addressing the interests and needs of all parties involved.

Cognitions

The mental processes involved in gaining knowledge and comprehension, including thinking, knowing, remembering, judging, and problem-solving.

Distributive Bargaining

A negotiation strategy where parties vie for the largest share of a fixed asset, often resulting in a win-lose situation.

Competitiveness

The desire to outperform others by being more successful, efficient, or superior.