Which of the Following Statements Is CORRECT

question 4

Multiple Choice

Which of the following statements is CORRECT?

• A) The WACC is calculated using before-tax costs for all components.
• B) The after-tax cost of debt usually exceeds the after-tax cost of equity.
• C) For a given firm,the after-tax cost of debt is always more expensive than the after-tax cost of non-convertible preferred stock.
• D) Retained earnings that were generated in the past and are reported on the firm's balance sheet are available to finance the firm's capital budget during the coming year.
• E) The WACC that should be used in capital budgeting is the firm's marginal,after-tax cost of capital.

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Definitions:

Stock Split

An action by a company to divide its existing shares into multiple new shares to boost the stock's liquidity, although the overall value of the company remains unchanged.

Market Price

The current price at which an asset or service can be bought or sold in the marketplace.

Comprehensive Income

It encompasses all changes in equity during a period, except those resulting from investments by and distributions to owners.

Net Income

The total earnings of a company after all expenses and taxes have been deducted from revenue, indicating the company's profit.