Which of the Following Statements Is Correct

question 30

Multiple Choice

Which of the following statements is correct?

• A) Because we often need to make comparisons among firms that are in different income tax brackets,it is best to calculate the WACC on a before-tax basis.
• B) If a firm has been suffering accounting losses and is expected to continue suffering such losses,and therefore its tax rate is zero,it is possible that its after-tax component cost of preferred stock as used to calculate the WACC will be less than its after-tax component cost of debt.
• C) Due to the way the MCC is constructed,the first break point in the MCC schedule must be associated with using up all available retained earnings and having to issue common stock.
• D) Normally,the cost of external equity raised by issuing new common stock is above the cost of retained earnings.Moreover,the higher the growth rate is relative to the dividend yield,the more the cost of external equity will exceed the cost of retained earnings.
• E) The lower a company's tax rate,the greater the advantage of using debt in terms of lowering its WACC.

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Definitions:

Point Estimate

A single value that serves as the best guess or best estimate of a population parameter based on sample data.

Population Parameter

A numerical value that summarizes or describes an aspect of a population.

Point Estimate

A single value (or point) derived from a sample that best predicts or estimates an unknown population parameter.

Population Proportion

The fraction or percentage of individuals in a population who possess a specific attribute or characteristic.