Which of the Following Statements Is CORRECT

question 54

Multiple Choice

Which of the following statements is CORRECT?

• A) The after-tax cost of debt that should be used as the component cost when calculating the WACC is the average after-tax cost of all the firm's outstanding debt.
• B) Suppose some of a publicly-traded firm's stockholders are not diversified; they hold only the one firm's stock.In this case, the CAPM approach will result in an estimated cost of equity that is too low in the sense that if it is used in capital budgeting, projects will be accepted that will reduce the firm's intrinsic value.
• C) Whether shareholders are already equity holders or are brand-new equity holders, they all have the same required rate of return on stock.
• D) The bond-yield-plus-risk-premium approach is the most sophisticated and objective method for estimating a firm's cost of equity capital.
• E) The cost of capital used to evaluate a project should be the cost of the specific type of financing used to fund that project, i.e., it is the after-tax cost of debt if debt is to be used to finance the project or the cost of equity if the project will be financed with equity.

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Definitions:

NAACP

The National Association for the Advancement of Colored People, a civil rights organization established in 1909 to combat prejudice, lynching, and to promote racial justice and equality.

Jim Crow Military

Refers to the racial segregation policies that were enforced within the U.S. armed forces, paralleling the Jim Crow laws in civilian life.

Pro-War Propaganda

Media and materials designed to promote support for war among the public.

Desegregate Military

The process of eliminating racial segregation within the military forces, officially initiated by President Harry S. Truman's Executive Order 9981 in 1948.