Which of the Following Statements Is CORRECT

question 88

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

Elasticity

Elasticity refers to the measure of how much the quantity demanded or supplied of a good changes in response to a change in price.

Normal Good

A good for which demand increases as the income of consumers increases and decreases as the income of consumers decreases.

Income Elasticity

A measure of how the demand for a good or service changes in response to changes in consumer income, indicating whether a good is a luxury or a necessity.

Price Elasticity

The measure of responsiveness of the quantity demanded or supplied of a good to a change in its price.