Which of the Following Statements Is Most Correct

question 36

Multiple Choice

Which of the following statements is most 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 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) All of the statements above are false.

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Definitions:

Emitted

The act of sending or discharging something, such as light, heat, or a behavior, often in response to specific stimuli or conditions.

Elicited

Drawn out or brought forth in response to a specific stimulus or set of circumstances.

Classical Conditioning

The acquisition of knowledge through the linkage between a stimulus found in the environment and one that happens naturally.

Resistance to Extinction

The resistance to disappearance of a conditioned response despite the lack of reinforcement.