Which of the Following Statements Is Correct

question 6

Multiple Choice

Which of the following statements is correct?

• A)The bond-yield-plus-risk-premium approach to estimating the cost of common equity involves adding a risk premium to the interest rate on the company's own long-term bonds. The size of the risk premium for bonds with different ratings is published daily in The Wall Street Journal.
• B)The WACC is calculated using a before-tax cost for debt equal to the interest rate that must be paid on new debt, along with the after-tax costs for common stock and for preferred stock if it is used.
• C)An increase in the risk-free rate is likely to reduce the marginal costs of both debt and equity.
• D)The WACC can change depending on the amount of funds a firm raises during a given year. Moreover, the WACC at each level of funds raised is a weighted average of the marginal costs of each capital component, with the weights based on the firm's target capital structure.

---

Definitions:

Unhealthy

Condition or practices detrimental to one's physical or mental health.

Healthy

A state of complete physical, mental, and social well-being, not merely the absence of disease or infirmity.

Bandura

A reference to Albert Bandura, a Canadian-American psychologist known for his work on social learning theory, which emphasizes the role of observational learning, modeling, and self-efficacy in behavior.

Model Behavior

Demonstrating a desired behavior as an example for others to emulate.