Which of the Following Statements Is CORRECT

question 78

Multiple Choice

Which of the following statements is CORRECT?

• A) Since the costs of internal and external equity are related,an increase in the flotation cost required to sell a new issue of stock will increase the cost of retained earnings.
• B) Since its stockholders are not directly responsible for paying a corporation's income taxes,corporations should focus on before-tax cash flows when calculating the WACC.
• C) An increase in a firm's tax rate will increase the component cost of debt,provided the YTM on the firm's bonds is not affected by the change in the tax rate.
• D) When the WACC is calculated,it should reflect the costs of new common stock,retained earnings,preferred stock,long-term debt,short-term bank loans if the firm normally finances with bank debt,and accounts payable if the firm normally has accounts payable on its balance sheet.
• E) If a firm has been suffering accounting losses that are expected to continue into the foreseeable future,and therefore its tax rate is zero,then it is possible for the after-tax cost of preferred stock to be less than the after-tax cost of debt.

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Definitions:

Spinal Nerve

One of the nerves that stem from the spinal cord, responsible for transmitting signals between the body and the spinal cord.

Dermatome

An area of skin supplied by sensory nerves stemming from a single spinal nerve root, important in defining patterns of sensation and diagnosing nerve or spinal cord injuries.

Trauma

A physical or psychological injury or wound, often resulting from an intense stressor or event.

Afferent Fibers

Nerve fibers that carry sensory signals from the body's periphery towards the central nervous system.