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:

Costs Incurred

Expenses that a company has recognized or recorded, reflecting amounts spent on operations, projects, or activities.

Transfer of Accounts Receivable

The process of selling or assigning the right to collect on outstanding invoices to another party.

Transferee

An individual or entity that receives the transfer of assets, rights, or interests from another party.

Transferor

The entity or person that transfers assets, obligations, or rights to another party.