Which of the Following Statements Is CORRECT

question 40

Multiple Choice

Which of the following statements is CORRECT?

• A) the after-tax cost of debt usually exceeds the after-tax cost of equity.
• B) for a given firm, the after-tax cost of debt is always more expensive than the after-tax cost of non-convertible preferred stock.
• C) retained earnings that were generated in the past and are reported on the firm's balance sheet are available to finance the firm's capital budget during the coming year.
• D) the wacc that should be used in capital budgeting is the firm's marginal, after-tax cost of capital.
• E) the wacc is calculated using before-tax costs for all components.

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Definitions:

Self-interest

The motivation by individuals to pursue actions or goals that are beneficial to themselves.

Common Good

A concept that refers to either policies or actions that benefit all members of a given community or society.

Veto Power

The authority to reject or prohibit proposals or laws, often held by a president, governor, or other leader.

Separation of Powers

The division of a state's government into branches, each with separate, independent powers and responsibilities, to prevent abuse of power and to provide a system of checks and balances.