Which of the Following Statements Is Correct

question 20

Multiple Choice

Which of the following statements is correct?

• A)An increase in the flotation cost required to sell a new issue of stock will increase the cost of retained earnings.
• B)An increase in a firm's tax rate will increase the component cost of debt, provided the YTM on the firm's bonds is not affected.
• C)When the WACC is calculated, it should reflect the cost of new common stock, retained earnings, preferred stock, long-term debt, and short-term bank loans if the firm normally finances with bank debt, and accounts payable if the firm normally has accounts payable on its balance sheet.
• D)If a firm has been suffering accounting losses that are expected to continue into the foreseeable future, and therefore its tax rate is zero, then it is possible for the after-tax cost of preferred stock to be less than the after-tax cost of debt.

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Definitions:

Deontology

An ethical theory that suggests actions should be judged based on whether they adhere to a set of rules or duties, regardless of the consequences.

Individual Rights

Refers to the rights guaranteed to individuals, typically by law or social agreement, that protect personal freedoms and ensure fair treatment.

Intentions

Plans or commitments individuals make toward achieving a specific outcome or behaving in a certain way.

Cognitive Moral Development

A theory that explains the stages through which individuals evolve in their ability to reason morally, from basic understanding to sophisticated ethical reasoning.