Which of the Following Statements Is CORRECT

question 23

Multiple Choice

Which of the following statements is CORRECT?

• A) Since debt capital can cause a company to go bankrupt but equity capital cannot,debt is riskier than equity,and thus the after-tax cost of debt is always greater than the cost of equity.
• B) The tax-adjusted cost of debt is always greater than the interest rate on debt,provided the company does in fact pay taxes.
• C) If a company assigns the same cost of capital to all of its projects regardless of each project's risk,then the company is likely to reject some safe projects that it actually should accept and to accept some risky projects that it should reject.
• D) Because no flotation costs are required to obtain capital as retained earnings,the cost of retained earnings is generally lower than the after-tax cost of debt.
• E) Higher flotation costs tend to reduce the cost of equity capital.

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Definitions:

James-Lange Theory

A hypothesis proposing that emotions are the outcome of physical responses to occurrences.

Placebos

Inert substances or treatments given to a participant in an experiment, lacking any specific pharmacological effect, used as a control to test the effectiveness of drugs.

Epinephrine Injections

Medical treatments involving the administration of epinephrine, a hormone and medication, to address severe allergic reactions, among other uses.

Schachter And Singer

Known for their two-factor theory of emotion, suggesting that emotions are the result of physiological arousal and the cognitive labeling of that arousal.