Which of the Following Statements Is Most Correct

question 14

Multiple Choice

Which of the following statements is most correct?

• A) Because the cost of debt is lower than the cost of equity, value-maximizing firms maintain debt ratios of close to 100%.
• B) Corporations that are 100% equity financed will have a much lower weighted average cost of capital because the lack of debt lowers their risk of bankruptcy.
• C) The source of capital with the lowest after-tax cost is preferred stock, because it is a hybrid security, part debt and part equity.
• D) The cost of a particular source of capital is equal to the investor's required rate of return after adjusting for the effects of both flotation costs and corporate taxes.

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Definitions:

Sunny Places

Locations or areas that receive a large amount of sunlight, typically used in reference to pleasant weather or climates.

Enthymeme

An argument in which one premise is not explicitly stated but is assumed in the reasoning.

Government-Insured Deposits

Refers to deposits in a financial institution that are protected by a government agency against the failure of that institution.

Unstated Premise

An implicit assumption in an argument that is not directly expressed but is required for the conclusion to follow.