Which of the Following Statements Is CORRECT

question 73

Multiple Choice

Which of the following statements is CORRECT?

• A) the tax-adjusted cost of debt is always greater than the interest rate on debt, provided the company does in fact pay taxes.
• B) if a company assigns the same cost of capital to all of its projects regardless of each project's risk, then the company is likely to reject some safe projects that it actually should accept and to accept some risky projects that it should reject.
• C) because no flotation costs are required to obtain capital as reinvested earnings, the cost of reinvested earnings is generally lower than the after-tax cost of debt.
• D) higher flotation costs tend to reduce the cost of equity capital.
• E) since debt capital can cause a company to go bankrupt but equity capital cannot, debt is riskier than equity, and thus the after-tax cost of debt is always greater than the cost of equity.

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Definitions:

Reader's Reason

The logical or motivational basis upon which a reader approaches a text or piece of communication.

Ciliated CNS Neuroglia

Specialized cells in the central nervous system with hair-like structures, involved in moving fluid or debris across their surfaces.

Cerebrospinal Fluid

Clear, colorless body fluid found in the brain and spinal cord, providing cushioning and maintaining a stable environment.

Ependymal Cells

Glial cells that line the ventricles in the brain and the central canal of the spinal cord, involved in the production of cerebrospinal fluid.