Which of the Following Statements Is Correct

question 33

Multiple Choice

Which of the following statements is correct?

• A)We should use historical measures of the component costs from prior financings when estimating a company's WACC for capital budgeting purposes.
• B)The cost of new equity (r_e) could possibly be lower than the cost of retained earnings (r_s) if the market risk premium, risk-free rate, and the company's beta all decline by a sufficiently large amount.
• C)The cost of retained earnings is the rate of return shareholders require on a firm's common stock.
• D)The component cost of preferred stock is expressed as r_p(1 - T), because preferred stock dividends are treated as fixed charges, similar to the treatment of interest on debt.

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