Which of the Following Statements Is Most Correct

question 27

Multiple Choice

Which of the following statements is most correct?

• A) The before-tax cost of preferred stock may be lower than the before-tax cost of debt,even though preferred stock is riskier than debt.
• B) If a company's stock price increases,this increases its cost of equity capital.
• C) If the cost of equity capital is low enough,it may be cheaper to issue common stock than it is to finance projects with retained earnings.
• D) Both a and b are correct.
• E) Answers a,b,and c are all correct.

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Definitions:

T-statistic

A type of statistic used in hypothesis testing, derived from the standardized difference between a sample statistic and its hypothesized population value, divided by the standard error.

Perfect Relationship

Refers to a situation where two variables move together in either 100% positive or 100% negative linear correlation, indicating a direct relationship without any variation.

Variance

Variance is a statistical measurement that describes the spread of numbers in a data set, indicating how far each number in the set is from the mean.

T-statistics

A measure used in statistical analysis to determine the difference between a sample statistic and its hypothesized population parameter, scaled by the standard error.