Which of the Following Statements Is Correct

question 59

Multiple Choice

Which of the following statements is correct?

• A) Capital components are the types of capital used by firms to raise money.All capital comes from one of three components: long-term debt, preference shares, and equity.
• B) Preference shares do not involve any adjustment for flotation cost since the dividend and price are fixed.
• C) The cost of debt used in calculating the WACC is an average of the after-tax cost of new debt and of outstanding debt.
• D) The opportunity cost principle implies that if the firm cannot invest retained earnings and earn at least rs, it should pay these funds to its shareholders and let them invest directly in other assets that do provide this return.
• E) The cost of new ordinary equity includes an adjustment for flotation costs which is expressed as a fixed percentage of the current share price.The flotation percentage is determined jointly by the current price of the firm's shares and its growth rate.

Apply the initial value method in accounting for investments.

Understand the application of the initial value method in accounting for investments between companies.

Analyze and calculate net income attributable to the noncontrolling and controlling interests.

Compute and interpret the effects of intra-entity transfers on consolidated financial statements.

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Definitions:

Supply Curves

Graphical representations that show the relationship between the price of a good or service and the quantity supplied by producers, assuming other factors remain constant.

Number of Firms

The total count of business entities operating within a particular market or industry.

Supply Curve

A graphical representation showing the relationship between the price of a good and the amount of it that producers are willing to supply.

Bond Rating Agencies

Independent firms that assess the creditworthiness of both debt securities and their issuers.