Which of the Following Statements Is CORRECT

question 86

Multiple Choice

Which of the following statements is CORRECT?

• A) When calculating the cost of debt, a company needs to adjust for taxes, because interest payments are deductible by the paying corporation.
• B) When calculating the cost of preferred stock, companies must adjust for taxes, because dividends paid on preferred stock are deductible by the paying corporation.
• C) Because of tax effects, an increase in the risk-free rate will have a greater effect on the after-tax cost of debt than on the cost of common stock as measured by the CAPM.
• D) If a company's beta increases, this will increase the cost of equity used to calculate the WACC, but only if the company does not have enough retained earnings to take care of its equity financing and hence must issue new stock.

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Definitions:

Protestant Ethic

A concept introduced by Max Weber, suggesting that the work ethic and practices associated with Protestantism contributed to the economic success of Protestant groups.

Max Weber

A German sociologist, philosopher, and political economist known for his theories on bureaucracy, social stratification, and the sociology of religion.

Gluskap

A mythical figure in the folklore of the Algonquin-speaking peoples of North America, often depicted as a hero or trickster who teaches and protects his people.

Conquest

Is the forcible capture of land and the economic and political domination of its inhabitants.