Which of the Following Statements Is Correct

question 69

Multiple Choice

Which of the following statements is correct?

• A) Suppose a firm is losing money and thus,is not paying taxes,and that this situation is expected to persist for a few years whether or not the firm uses debt financing.Then the firm's after-tax cost of debt will equal its before-tax cost of debt.
• B) The component cost of preferred stock is expressed as r_ps(1 − T),because preferred stock dividends are treated as fixed charges,similar to the treatment of debt interest.
• C) The reason that a cost of capital is assigned to retained earnings is because these funds are already earning a return in the business;the reason does not involve the opportunity cost principle.
• D) The bond-yield-plus-risk-premium approach to estimating a firm's cost of common equity involves adding a subjectively determined risk-premium to the market risk-free bond rate.
• E) None of the above is a correct statement.

---

Definitions:

Peripheral Nervous System

The part of the nervous system outside the brain and spinal cord, responsible for connecting the central nervous system to limbs and organs.

Somatic Nervous System

Part of the peripheral nervous system that is responsible for carrying sensory and motor information to and from the central nervous system.

Movement

The act or process of moving; a change of place or position, often referring to physical activity or migration.

Spinal Cord

The spinal cord is a long, thin, tubular structure made up of nervous tissue that extends from the medulla oblongata in the brainstem to the lumbar region of the vertebral column.