Which of the Following Statements Is CORRECT

question 79

Multiple Choice

Which of the following statements is CORRECT?

• A) The after-tax cost of debt that should be used as the component cost when calculating the WACC is the average after-tax cost of all the firm's outstanding debt.
• B) Suppose some of a publicly-traded firm's stockholders are not diversified;they hold only the one firm's stock.In this case,the CAPM approach will result in an estimated cost of equity that is too low in the sense that if it is used in capital budgeting,projects will be accepted that will reduce the firm's intrinsic value.
• C) The cost of equity is generally harder to measure than the cost of debt because there is no stated,contractual cost number on which to base the cost of equity.
• D) The bond-yield-plus-risk-premium approach is the most sophisticated and objective method for estimating a firm's cost of equity capital.
• E) The cost of capital used to evaluate a project should be the cost of the specific type of financing used to fund that project,i.e. ,it is the after-tax cost of debt if debt is to be used to finance the project or the cost of equity if the project will be financed with equity.

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Definitions:

Short-Term Memory

The capacity of the brain to hold a small amount of information in an active, readily available state for a short period of time.

Visual Coding

Visual coding involves the process by which the brain and nervous system encode visual information, transforming light stimuli received by the eye into neural signals that can be interpreted to form visual images.

Acoustical Coding

The process by which sounds are represented and remembered in the memory system.

Long-Term Memory

A type of memory capable of storing large amounts of information for potentially unlimited durations, including facts, experiences, and skills.