Which of the Following Statements Is Correct

question 6

Multiple Choice

Which of the following statements is correct?

• A)The bond-yield-plus-risk-premium approach to estimating the cost of common equity involves adding a risk premium to the interest rate on the company's own long-term bonds. The size of the risk premium for bonds with different ratings is published daily in The Wall Street Journal.
• B)The WACC is calculated using a before-tax cost for debt equal to the interest rate that must be paid on new debt, along with the after-tax costs for common stock and for preferred stock if it is used.
• C)An increase in the risk-free rate is likely to reduce the marginal costs of both debt and equity.
• D)The WACC can change depending on the amount of funds a firm raises during a given year. Moreover, the WACC at each level of funds raised is a weighted average of the marginal costs of each capital component, with the weights based on the firm's target capital structure.

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Definitions:

Maslow

Refers to Abraham Maslow, an American psychologist known for creating Maslow's hierarchy of needs, a theory of psychological health predicated on fulfilling innate human needs.

Appreciate

The recognition and enjoyment of the good qualities of someone or something, often leading to a sense of gratitude.

Self-actualize

The process of realizing or achieving one's potential and capacities, making it a key goal in humanistic psychology.

Maslow

A psychologist best known for creating Maslow's hierarchy of needs, a theory of psychological health predicated on fulfilling innate human needs in priority, culminating in self-actualization.