Which of the Following Statements Is Correct

question 30

Multiple Choice

Which of the following statements is correct?

• A) Because we often need to make comparisons among firms that are in different income tax brackets,it is best to calculate the WACC on a before-tax basis.
• B) If a firm has been suffering accounting losses and is expected to continue suffering such losses,and therefore its tax rate is zero,it is possible that its after-tax component cost of preferred stock as used to calculate the WACC will be less than its after-tax component cost of debt.
• C) Due to the way the MCC is constructed,the first break point in the MCC schedule must be associated with using up all available retained earnings and having to issue common stock.
• D) Normally,the cost of external equity raised by issuing new common stock is above the cost of retained earnings.Moreover,the higher the growth rate is relative to the dividend yield,the more the cost of external equity will exceed the cost of retained earnings.
• E) The lower a company's tax rate,the greater the advantage of using debt in terms of lowering its WACC.

---

Definitions:

Scientific Failings

Instances where scientific research or experiments do not achieve their intended outcomes, often leading to a reevaluation of hypotheses or methodologies.

Individualist Cultures

Societies that emphasize personal achievements and rights, prioritizing individual goals over group objectives.

Collectivist Cultures

Societies that prioritize the needs and goals of the group over the individual, emphasizing interdependence, family ties, and social harmony.

Cost/Benefit Ratio

A comparison of the costs involved in an action to the benefits derived from that action, used in decision-making and evaluation of projects or investments.