Which One of These Statements Is Correct

question 30

Multiple Choice

Which one of these statements is correct?

• A)Flotation costs increase the value of R_S.
• B)The weighted average cost of capital is equal to B/S(R_S)(1 − T_c).
• C)The discount rate for levered equity is unaffected by the debt-equity ratio.
• D)The cost of equity for an all-equity firm is less than the cost of equity for a levered firm.
• E)The cost of levered equity is indirectly related to beta.

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Definitions:

Institutional Investors

Organizations that invest large volumes of money in securities, real estate, and other investment assets, including pension funds, insurance companies, and banks.

Goes Public

The process by which a privately-held company offers its shares to the public for the first time, through an initial public offering (IPO).

Stock Issue

The process by which a company distributes new shares to investors, either through a public offering or privately, to raise capital.

Potential Investors

Individuals or entities that may consider investing capital into a business, project, or security.