Which of the Following Statements Is CORRECT

question 89

Multiple Choice

Which of the following statements is CORRECT?

• A) the percentage flotation cost associated with issuing new common equity is typically smaller than the flotation cost for new debt.
• B) the wacc as used in capital budgeting is an estimate of the cost of all the capital a company has raised to acquire its assets.
• C) there is an "opportunity cost" associated with using reinvested earnings, hence they are not "free."
• D) the wacc as used in capital budgeting would be simply the after-tax cost of debt if the firm plans to use only debt to finance its capital budget during the coming year.
• E) the wacc as used in capital budgeting is an estimate of a company's before-tax cost of capital.

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Definitions:

Common Stock

Equity ownership in a corporation, granting shareholders voting rights and a share in the company's profits through dividends.

Fair Value

The amount receivable for an asset sale or payable to undertake a liability in a transaction structured among market actors at the point of evaluation.

Par Value

The face value of a bond or stock as stated by the issuing company.

Consolidated Inventories

Inventories of a consolidated entity that are reported as a combined total from all subsidiaries and the parent company.