Which of the Following Statements Is CORRECT

question 88

Multiple Choice

Which of the following statements is CORRECT?

• A) When calculating the cost of preferred stock, a company needs to adjust for taxes, because preferred stock dividends are deductible by the paying corporation.
• B) All else equal, an increase in a company's stock price will increase its marginal cost of retained earnings, rs.
• C) All else equal, an increase in a company's stock price will increase its marginal cost of new common equity, re.
• D) Since the money is readily available, the after-tax cost of retained earnings is usually much lower than the after-tax cost of debt.
• E) If a company's tax rate increases but the YTM on its noncallable bonds remains the same, the after-tax cost of its debt will fall.

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Definitions:

Gross Profit

The revenue remaining after deducting the cost of goods sold (COGS) from the total sales revenue, indicating the efficiency of a company in managing its production and labor costs.

Equity in Investee Income

Equity in Investee Income refers to an investor's share of the income or losses of a company in which it holds an equity investment, recognized in proportion to its ownership percentage.

Significant Influence

The ability to impact the financial and operating policies of an investee through ownership or contract without having full control or majority ownership.

Gross Profit

The difference between revenue and the cost of goods sold before accounting for certain other costs.