Which of the Following Statements Is CORRECT

question 29

Multiple Choice

Which of the following statements is CORRECT?

• A) A cost should be assigned to reinvested earnings due to the opportunity cost principle, which refers to the fact that the firm's stockholders would themselves expect to earn a return on earnings that were distributed rather than retained and reinvested.
• B) No cost should be assigned to reinvested earnings because the firm does not have to pay anything to raise them.They are generated as cash flows by operating assets that were raised in the past; hence, they are "free."
• C) Suppose a firm has been losing money and thus is not paying taxes, and this situation is expected to persist into the foreseeable future.In this case, the firm's before-tax and after-tax costs of debt for purposes of calculating the WACC will both be equal to the interest rate on the firm's currently outstanding debt, provided that debt was issued during the past 5 years.
• D) If a firm has enough reinvested earnings to fund its capital budget for the coming year, then there is no need to estimate either a cost of equity or a WACC.
• E) The component cost of preferred stock is expressed as r_p(1 − T).This follows because preferred stock dividends are treated as fixed charges, and as such they can be deducted by the issuer for tax purposes.

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Definitions:

Chromosomal DNA

The DNA that is contained within the chromosomes of a cell, carrying genetic information vital for the cell's structure, development, and function.

Nuclei

The central and most important part of an object, movement, or group, forming the basis for its activity and growth; in biology, the membrane-bound organelle that contains the cell's DNA.

Systematic Notes

Organized and methodical recordings of observations, measurements, or information that are carefully maintained for analysis, research, or documentation purposes.

Gregor Mendel

A scientist known as the father of modern genetics for his pioneering work on the inheritance of traits in pea plants, establishing the laws of genetics.