Which of the Following Statements Is Correct

question 45

Multiple Choice

Which of the following statements is correct?

• A) An increase in the flotation cost required to sell a new issue of stock will increase the cost of retained earnings.
• B) 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.
• C) When the WACC is calculated, it should reflect the cost 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.
• D) 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.

---

Definitions:

Indefinite Period

A duration of time without a specified end, often creating uncertainty in contracts or agreements.

Statute of Frauds

Legal regulation stipulating that certain contracts must be written and signed to be legally enforceable, including agreements related to real estate, marriage, and debts.

Writing Requirement

The writing requirement refers to a legal principle that certain agreements or contracts must be in written form and signed by the parties involved to be legally enforceable.

Statute of Frauds

A legal principle requiring certain contracts to be in writing and signed by the party to be charged, to be enforceable.