Which of the Following Statements Is Correct

question 100

Multiple Choice

Which of the following statements is correct?

• A) Capital components are the types of capital used by firms to raise money.All capital comes from one of three components: long-term debt,preferred stock,and equity.
• B) Preferred stock does not involve any adjustment for flotation cost since the dividend and price are fixed.
• C) The cost of debt used in calculating the WACC is an average of the after-tax cost of new debt and of outstanding debt.
• D) The opportunity cost principle implies that if the firm cannot invest retained earnings and earn at least r_s,it should pay these funds to its stockholders and let them invest directly in other assets that do provide this return.
• E) The cost of new common equity includes an adjustment for flotation costs that is expressed as a fixed percentage of the current stock price.The flotation percentage is determined jointly by the current price of the firm's stock and its growth rate.

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Definitions:

Market Price

The current price at which a good or service can be bought or sold in a particular market.

Long Run

A period in economic analysis where all factors of production and costs are variable, allowing full adjustment to changes.

Weekly Operating Profits

Weekly operating profits describe the earnings a business generates from its normal operations over a one-week period, excluding any income from investments or other non-operational sources.

Short Run

An interval in economic studies where a minimum of one production element remains constant and is unalterable.