Which of the Following Statements Is CORRECT

question 78

Multiple Choice

Which of the following statements is CORRECT?

• A) Since the costs of internal and external equity are related,an increase in the flotation cost required to sell a new issue of stock will increase the cost of retained earnings.
• B) Since its stockholders are not directly responsible for paying a corporation's income taxes,corporations should focus on before-tax cash flows when calculating the WACC.
• C) An increase in a firm's tax rate will increase the component cost of debt,provided the YTM on the firm's bonds is not affected by the change in the tax rate.
• D) When the WACC is calculated,it should reflect the costs of new common stock,retained earnings,preferred stock,long-term debt,short-term bank loans if the firm normally finances with bank debt,and accounts payable if the firm normally has accounts payable on its balance sheet.
• E) If a firm has been suffering accounting losses that are expected to continue into the foreseeable future,and therefore its tax rate is zero,then it is possible for the after-tax cost of preferred stock to be less than the after-tax cost of debt.