Which of the Following Statements Is CORRECT

question 70

Multiple Choice

Which of the following statements is CORRECT?

• A) In the WACC calculation, we must adjust the cost of preferred stock (the market yield) to reflect the fact that 70% of the dividends received by corporate investors are excluded from their taxable income.
• B) We should use historical measures of the component costs from prior financings that are still outstanding when estimating a company's WACC for capital budgeting purposes.
• C) The cost of new equity (re) could possibly be lower than the cost of retained earnings (rs) if the market risk premium, risk-free rate, and the company's beta all decline by a sufficiently large amount.
• D) Its cost of retained earnings is the rate of return stockholders require on a firm's common stock.
• E) The component cost of preferred stock is expressed as rp(1 - T), because preferred stock dividends are treated as fixed charges, similar to the treatment of interest on debt.

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Definitions:

Nervous

The nervous system is the part of an organism that coordinates its actions and sensory information by transmitting signals to and from different parts of its body.

Epithelial

Referring to the tissues composed of layers of cells that line the surfaces and cavities of organs and structures throughout the body.

Muscle

Muscle is a tissue in animal bodies that uses the chemical energy stored in ATP to contract, thus producing movement or maintaining posture.

Nerve Tissue

A type of tissue that is composed of neurons and supporting cells, responsible for transmitting electrical impulses throughout the body.