Which of the Following Statements Is CORRECT

question 66

Multiple Choice

Which of the following statements is CORRECT?

• A) The WACC as used in capital budgeting is an estimate of a company's before-tax cost of capital.
• B) The percentage flotation cost associated with issuing new common equity is typically smaller than the flotation cost for new debt.
• C) The WACC as used in capital budgeting is an estimate of the cost of all the capital a company has raised to acquire its assets.
• D) There is an "opportunity cost" associated with using retained earnings,hence they are not "free."
• E) The WACC as used in capital budgeting would be simply the before-tax cost of debt if the firm plans to use only debt to finance its capital budget during the coming year.

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Definitions:

Fixed Maturity Date

The predetermined date on which a financial instrument, such as a bond, loan, or investment, is due to be repaid or mature.

Ownership

The legal right to possess, use, and dispose of anything of value, including tangible and intangible assets.

Held-to-maturity Securities

Debt securities that a company has the intent and ability to hold until they mature, not to be sold beforehand.

Debt Investments

Investments made through the purchase of bonds, notes, or other financial instruments that obligate the issuer to pay the investor fixed or variable interest payments and to repay the principal at maturity.