Author Question: Which of the following statements is correct? (Read 37 times)

bvyeehaw · **on:** Aug 7, 2023

Which of the following statements is correct?

◦

The component cost of preferred stock is expressed as r_p(1 – T). This follows because preferred stock dividends are treated as fixed charges, and as such they can be deducted by the issuer for tax purposes.

◦

A cost should be assigned to retained earnings due to the opportunity cost principle, which refers to the fact that the firm’s shareholders could themselves earn a return on earnings by reinvesting the money in other investments if they were paid out rather than retained and reinvested.

◦

Suppose a firm has been losing money and thus is not paying taxes, and this situation is expected to persist into the foreseeable future. In this case, the firm’s before-tax and after-tax costs of debt will both be equal to the interest rate on the firm’s currently outstanding debt, provided that debt was issued during the past 10 years.

◦

If a firm has enough retained earnings to fund its capital budget for the coming year, then there is no need to estimate either a cost of equity or a WACC.

sadoniam · **Reply #1 on:** Aug 7, 2023

A FREE account is required to view all solutions!

Lorsum iprem. Lorsus sur ipci. Lorsem sur iprem. Lorsum sur ipdi, lorsem sur ipci. Lorsum sur iprium, valum sur ipci et, vala sur ipci. Lorsem sur ipci, lorsa sur iprem. Valus sur ipdi. Lorsus sur iprium nunc, valem sur iprium. Valem sur ipdi. Lorsa sur iprium. Lorsum sur iprium. Valem sur ipdi. Vala sur ipdi nunc, valem sur ipdi, valum sur ipdi, lorsem sur ipdi, vala sur ipdi. Valem sur iprem nunc, lorsa sur iprium. Valum sur ipdi et, lorsus sur ipci. Valem sur iprem. Valem sur ipci. Lorsa sur iprium. Lorsem sur ipci, valus sur iprem. Lorsem sur iprem nunc, valus sur iprium.

Answer Preview

Only 39% of students answer this correctly