Which of the Following Statements Is Correct

question 61

Multiple Choice

Which of the following statements is correct?

• A)A cost should be assigned to retained earnings due to the opportunity cost principle, which refers to the fact that the firm's stockholders could themselves earn a return on earnings if they were paid out rather than retained and reinvested.
• B)No cost should be assigned to retained earnings because the firm does not have to pay anything to raise them-they are generated as cash flows by operating assets that were raised in the past; hence, they are "free."
• C)Suppose a firm has been losing money and thus is not paying taxes, and this situation is expected to persist into the foreseeable future. In this case, the firm's before-tax and after-tax costs of debt will both be equal to the interest rate on the firm's currently outstanding debt, provided that debt was issued during the past 5 years.
• D)If a firm has enough retained earnings to fund its capital budget for the coming year, then there is no need to estimate either a cost of equity or a WACC.

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Definitions:

Very High Goals

Goals set by individuals or organizations that are significantly challenging and ambitious, often aiming to achieve exceptional outcomes.

Learned Needs Model

A theory that suggests individuals acquire their needs based on their life experiences and these needs drive their behavior towards achieving certain goals.

Achievement

The successful completion or attainment of an objective or goal, often recognized or measurable through specific criteria or benchmarks.

Affiliation

A sense of belonging and connection within a group or organization.