Which of the Following Statements Is CORRECT

question 65

Multiple Choice

Which of the following statements is CORRECT?

• A) The tax-adjusted cost of debt is always greater than the interest rate on debt, provided the company does in fact pay taxes.
• B) 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.
• C) Because no flotation costs are required to obtain capital as reinvested earnings, the cost of reinvested earnings is generally lower than the after-tax cost of debt.
• D) Higher flotation costs tend to reduce the cost of equity capital.
• E) 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.

---

Definitions:

Life Stages

Distinct phases of human development characterized by physical, psychological, and social changes, spanning from birth to death.

Biological Perspective

An approach in psychology and biology that explains behaviors and mental processes through biological factors, such as genetics, neurotransmitters, and the anatomy of the brain.

Mass Media

Diverse media technologies that reach a large audience via mass communication, encompassing news, entertainment, and advertising through outlets like TV, radio, and the Internet.

Emphasis

The importance, stress, or prominence given to something in speaking, writing, or actions, highlighting its significance.