Which of the Following Statements Is CORRECT

question 7

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,r_s.
• C) All else equal,an increase in a company's stock price will increase its marginal cost of new common equity,r_e.
• 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:

Subsidiaries

Companies that are controlled by another company, known as the parent company, through the ownership of more than half of their voting stock or through other control mechanisms.

Directors

Individuals appointed or elected to oversee the management and make strategic and policy decisions for a corporation or organization.

Key Management Personnel

Individuals who have authority and responsibility for planning, directing, and controlling the activities of an entity, typically including the company’s directors and senior executives.

Significant Influence

The power to participate in the financial and operating policy decisions of an entity but is not control or joint control over those policies.