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:

Comparative Advantage

The ability of an individual or country to produce a good or service at a lower opportunity cost than others.

Production Possibilities

A curve representing all possible combinations of two goods that can be produced within a given economy when resources are fully and efficiently utilized.

Specializes

Specialization involves focusing on a narrow area of knowledge or skill, often to improve efficiency or performance.