Which of the Following Is the Correct Relationship Between Different

question 30

Multiple Choice

Which of the following is the correct relationship between different capital components of a firm? r_d = before-tax cost of debt; r_s = cost of retained earnings; re = cost of new common equity

• A)r_s < r_e
• B)r_d = r_s
• C)r_s = r_e
• D)r_s < r_d
• E)r_e = r_e + r_d

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Definitions:

Stock Dividend

A dividend payment made by a company to its shareholders in the form of additional shares, rather than cash.

Reacquired

Refers to assets or shares that a company buys back from investors or shareholders.

Common Stock

A type of equity security that represents ownership in a corporation, with holders typically having voting rights.

Earnings Per Share

A measure of a company's profitability calculated by dividing its net income by the total number of outstanding shares.