Which of the Following Statements Is Correct

question 69

Multiple Choice

Which of the following statements is correct?

• A) Suppose a firm is losing money and thus,is not paying taxes,and that this situation is expected to persist for a few years whether or not the firm uses debt financing.Then the firm's after-tax cost of debt will equal its before-tax cost of debt.
• B) The component cost of preferred stock is expressed as r_ps(1 − T),because preferred stock dividends are treated as fixed charges,similar to the treatment of debt interest.
• C) The reason that a cost of capital is assigned to retained earnings is because these funds are already earning a return in the business;the reason does not involve the opportunity cost principle.
• D) The bond-yield-plus-risk-premium approach to estimating a firm's cost of common equity involves adding a subjectively determined risk-premium to the market risk-free bond rate.
• E) None of the above is a correct statement.

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Definitions:

F-ratio

A statistical measure used in the analysis of variance (ANOVA) to compare the variance between groups with the variance within groups.

F-ratio

A statistical measure used in the analysis of variance (ANOVA) to determine the ratio of variance between groups to the variance within groups.

Null Hypothesis

The default hypothesis that there is no significant difference or relationship between specified populations, any observed effect is due to sampling or experimental error.

GPAs

Grade point averages, numerical calculations that represent the average performance of a student across all completed courses.