Which One of the Following Statements Is Correct? Assume the Pre-Tax

question 42

Multiple Choice

Which one of the following statements is correct? Assume the pre-tax cost of debt is less than the cost of equity.

• A)A firm may change its capital structure if the government changes its tax policies.
• B)The cost of preferred stock decreases when the tax rate increases.
• C)A decrease in the systematic risk of a firm will increase the firm's cost of capital.
• D)A decrease in a firm's debt-equity ratio will decrease the firm's cost of capital.
• E)A decrease in the dividend growth rate increases the cost of equity.

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Definitions:

Underestimate

To assess something as less important, less capable, or lower in quantity than it actually is.

Defensive Self-Esteem

A psychological condition where an individual's self-esteem is formed from defending oneself against criticisms, leading to fragile self-confidence.

Boast

To speak with excessive pride and self-satisfaction about one's achievements, possessions, or abilities.

Criticizes

The act of expressing disapproval or finding faults in something or someone, often with the intention of suggesting possible improvements.