Which of the Following Statements Is CORRECT

question 47

Multiple Choice

Which of the following statements is CORRECT?

• A) We should use historical measures of the component costs from prior financings that are still outstanding when estimating a company's WACC for capital budgeting purposes.
• B) The cost of new equity (r_e)could possibly be lower than the cost of reinvested earnings (r_s)if the market risk premium,risk-free rate,and the company's beta all decline by a sufficiently large amount.
• C) A firm's cost of reinvesting earnings is the rate of return stockholders require on a firm's common stock.
• D) The component cost of preferred stock is expressed as r_p(1 − T),because preferred stock dividends are treated as fixed charges,similar to the treatment of interest on debt.
• E) In the WACC calculation,we must adjust the cost of preferred stock (the market yield)to reflect the fact that 70% of the dividends received by corporate investors are excluded from their taxable income.

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Definitions:

Sweating

A physiological process of secreting fluid from sweat glands of the skin, often induced by heat or stress as part of the body's cooling mechanism.

Physical Symptoms

Observable or felt changes in the body that often indicate disease, discomfort, or the effects of stress.

Agreeableness

A personality trait characterized by compassion, cooperativeness, and a desire for social harmony.

Antagonism

Extreme low agreeableness.