Which of the Following Statements Is Most Correct

question 55

Multiple Choice

Which of the following statements is most correct?

• A) Capital components are the types of capital used by firms to raise money. All capital comes from one of three components: long-term debt, preferred stock, and equity.
• B) Preferred stock does not involve any adjustment for flotation cost since the dividend and price are fixed.
• C) The cost of debt used in calculating the WACC is an average of the after-tax cost of new debt and of outstanding debt.
• D) The opportunity cost principle implies that if the firm cannot invest retained earnings and earn at least rs, it should pay these funds to its stockholders and let them invest directly in other assets that do provide this return.
• E) The cost of common stock, rs, is usually less than the cost of preferred stock.

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Definitions:

Personally Liable

Refers to the direct responsibility an individual has to fulfill an obligation or debt, making their personal assets vulnerable to being claimed in the event of non-fulfillment.

Enabling Statute

Legislation that creates new powers or authorities for government agencies or officials to implement and enforce laws.

Open Spaces

Areas of land that are not developed, reserved for public use or enjoyment, often to preserve natural or cultural resources.

Hidden Defects

Flaws or imperfections in a product or property that are not readily observable and may not be known until after a transaction has occurred.