Which of the Following Statements Is Incorrect Concerning the Equity

question 90

Multiple Choice

Which of the following statements is incorrect concerning the equity component of the WACC?

• A)the value of retained earnings is not included.
• B)market values should be used in the calculations.
• C)preferred equity has a separate component.
• D)there is a tax shield such as with debt.

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Definitions:

Conditional Sales Agreement Lease

A financial arrangement where the lessee acquires an asset under a lease agreement but only becomes the owner upon full payment of the lease.

Secured Loan

A loan backed by collateral, reducing the risk for the lender and often resulting in a lower interest rate for the borrower.

Leveraged Lease

A lease agreement where the lessor uses borrowed funds to purchase an asset which is then leased to the lessee, allowing for tax benefits and risk-sharing.

Nonrecourse

A type of loan where the lender’s recovery is limited to the collateral pledged for the loan, with no further claim against the borrower in case of default.