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.

---

Definitions:

Crisis Impact

The effect or aftermath of a significant adverse event, often challenging the stability, reputation, or operations of an entity.

Faulty Airbags

Airbag systems in vehicles that have defects which can cause them not to deploy correctly in the event of a crash, potentially leading to injury or death.

Product Crisis

A significant problem or failure with a product that negatively impacts its users and can lead to a loss of trust in the brand.

Litigation Crisis

A crisis driven by a lawsuit (or the threat of one) that plays out in the court of public opinion as well as in the legal system.