Which of the Following Statements Is CORRECT

question 23

Multiple Choice

Which of the following statements is CORRECT?

• A) 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.
• B) The tax-adjusted cost of debt is always greater than the interest rate on debt,provided the company does in fact pay taxes.
• C) 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.
• D) Because no flotation costs are required to obtain capital as retained earnings,the cost of retained earnings is generally lower than the after-tax cost of debt.
• E) Higher flotation costs tend to reduce the cost of equity capital.

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Definitions:

Imitated

The act of copying or mimicking the actions, behavior, or appearance of someone else.

Aggressive

Refers to behaviors or attitudes that demonstrate hostility, dominance, or the intent to harm others.

Artistic

Pertains to the creation or appreciation of beauty, expressed through mediums such as painting, music, literature, or performance.

Production Processes

The methods and sequences of operations involved in the manufacture or production of goods.