Which of the Following Statements Is CORRECT

question 3

Multiple Choice

Which of the following statements is CORRECT?

• A) 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.
• B) The cost of new equity (r_e) could possibly be lower than the cost of reinvested earnings (r_s) if the market risk premium, risk-free rate, and the company's beta all decline by a sufficiently large amount.
• C) A company must try to adjust its current actual market value weights toward its target weights.
• D) The component cost of preferred stock is expressed as r_p(1 − T), because preferred stock dividends are treated as fixed charges, similar to the treatment of interest on debt.
• E) In the WACC calculation, we must adjust the cost of preferred stock (the market yield) to reflect the fact that 50% of the dividends received by corporate investors are excluded from their taxable income.

Understand the processes of empowerment and decentralization in decision-making.

Comprehend the relevance of campaign financing and legal issues in corporate governance.

Analyze the importance and impact of business cycles on managerial decisions and business performance.

Understand the changes and trends in the U.S. workforce demographics.

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Definitions:

Procedures

The official or established way of doing something, often detailed through a series of steps or actions to be taken.

Guidelines

General rules, principles, or pieces of advice that suggest how something should be done or what something should be.

Account Category

The classification of accounts into different types, such as assets, liabilities, equity, revenue, and expenses, to organize financial information effectively.

Assets

Economic resources or valuable items owned by a business, capable of being converted into cash or used in generating revenue.