Which of the Following Statements Is CORRECT

question 4

Multiple Choice

Which of the following statements is CORRECT?

• A) The WACC is calculated using before-tax costs for all components.
• B) The after-tax cost of debt usually exceeds the after-tax cost of equity.
• C) For a given firm,the after-tax cost of debt is always more expensive than the after-tax cost of non-convertible preferred stock.
• D) Retained earnings that were generated in the past and are reported on the firm's balance sheet are available to finance the firm's capital budget during the coming year.
• E) The WACC that should be used in capital budgeting is the firm's marginal,after-tax cost of capital.

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Definitions:

Cost-Volume-Profit Relationships

An analysis tool measuring how changes in costs, sales volume, and price affect a company’s profit.

Net Operating Income

The profit realized from a business's operations after subtracting operating expenses from gross profit.

Sold Unit

Refers to a single unit of product that has been sold, representing a measure of the volume of sales transactions.

Operating Leverage

A measure of how revenue growth translates into growth in operating income, influenced by the proportion of fixed costs to variable costs.