Which of the Following Statements Is CORRECT

question 78

Multiple Choice

Which of the following statements is CORRECT?

• A) Since the costs of internal and external equity are related,an increase in the flotation cost required to sell a new issue of stock will increase the cost of retained earnings.
• B) Since its stockholders are not directly responsible for paying a corporation's income taxes,corporations should focus on before-tax cash flows when calculating the WACC.
• C) An increase in a firm's tax rate will increase the component cost of debt,provided the YTM on the firm's bonds is not affected by the change in the tax rate.
• D) When the WACC is calculated,it should reflect the costs of new common stock,retained earnings,preferred stock,long-term debt,short-term bank loans if the firm normally finances with bank debt,and accounts payable if the firm normally has accounts payable on its balance sheet.
• E) If a firm has been suffering accounting losses that are expected to continue into the foreseeable future,and therefore its tax rate is zero,then it is possible for the after-tax cost of preferred stock to be less than the after-tax cost of debt.

Calculate the rate of interest for a given investment scenario.

Understand the concept of present value and compute it for various contracts.

Apply the concept of future value in different financial contexts.

Determine the viability of investments based on cash flow comparisons.

---

Definitions:

Advertising Samples

Free examples of a product used as part of a marketing strategy to entice potential customers.

Business Plan

A document that outlines a company's strategy, financial projections, and market research.

Sources And Uses Of Funds

A financial document used by start-up businesses that shows where capital comes from and what it will be used for.

Startup Businesses

Newly established enterprises, often in the early stage of development, focused on bringing a unique product or service to the market.