Which of the Following Statements Is CORRECT

question 18

Multiple Choice

Which of the following statements is CORRECT?

• A) When calculating the cost of preferred stock, companies must adjust for taxes, because dividends paid on preferred stock are deductible by the paying corporation.
• B) Because of tax effects, an increase in the risk-free rate will have a greater effect on the after-tax cost of debt than on the cost of common stock as measured by the CAPM.
• C) If a company's beta increases, this will increase the cost of equity used to calculate the WACC, but only if the company does not have enough reinvested earnings to take care of its equity financing and hence must issue new stock.
• D) Higher flotation costs reduce investors' expected returns, and that leads to a reduction in a company's WACC.
• E) When calculating the cost of debt, a company needs to adjust for taxes, because interest payments are deductible by the paying corporation.

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Definitions:

Tubular Reabsorption

The process by which the kidneys reclaim water and solutes from the tubular fluid and return them to the blood.

Nephron

The functional unit of the kidney, responsible for filtering blood and forming urine through processes of filtration, reabsorption, and secretion.

Filtered Molecules

Substances that have passed through a filtering process, often referring to molecules separated based on size or charge, especially in biological and chemical contexts.

Aging

A biological process involving the accumulation of changes in an organism over time, leading to a gradual decline in physiological functions and increased susceptibility to diseases.