Which of the Following Statements Is Correct

question 45

Multiple Choice

Which of the following statements is correct?

• A) We should use historical measures of the component costs from prior financings when estimating a company's WACC for capital budgeting purposes.
• B) The cost of new equity (re) could possibly be lower than the cost of retained earnings (rs) if the market risk premium, risk-free rate, and the company's beta all decline by a sufficiently large amount.
• C) Its cost of retained earnings is the rate of return shareholders require on a firm's common stock.
• D) The component cost of preferred stock is expressed as rp(1 - T), because preferred stock dividends are treated as fixed charges, similar to the treatment of interest on debt.

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Definitions:

Granite Bedrock

The solid rock layer under the soil composed primarily of granite, a coarse-grained igneous rock consisting mainly of quartz, mica, and feldspar.

Spheroidal Weathering

A form of mostly chemical weathering in which concentric or spherical shells of decayed rock are successively separated from a block of rock.

Rounded Shapes

Forms or outlines that are smooth and curved without sharp angles or edges, often formed by erosion or weathering processes in nature.

Karst Terrain

A landscape formed from the dissolution of soluble rocks such as limestone, dolomite, and gypsum, characterized by underground drainage systems with sinkholes, caves, and springs.