Which of the Following Statements Is CORRECT

question 2

Multiple Choice

Which of the following statements is CORRECT?

• A) The tax-adjusted cost of debt is always greater than the interest rate on debt, provided the company does in fact pay taxes.
• B) If a company assigns the same cost of capital to all of its projects regardless of each project's risk, then the company is likely to reject some safe projects that it actually should accept and to accept some risky projects that it should reject.
• C) Because no flotation costs are required to obtain capital as reinvested earnings, the cost of reinvested earnings is generally lower than the after-tax cost of debt.
• D) Higher flotation costs tend to reduce the cost of equity capital.
• E) Since debt capital can cause a company to go bankrupt but equity capital cannot, debt is riskier than equity, and thus the after-tax cost of debt is always greater than the cost of equity.

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Definitions:

Empathizing Skill

The ability to understand and share the feelings or thoughts of another individual from their perspective.

Questioning Skill

Questioning skill involves the ability to ask effective and meaningful questions that facilitate learning, understanding, or problem-solving.

Relevant Responses

Appropriate or suitable reactions or answers to questions or situations, which are directly connected to what is being asked or considered.

Active Listening

A communication technique that involves giving free and undivided attention to the speaker, reflecting back what is said, and withholding judgment and advice.