Which of the following statements is correct for a given company? a.The cost of equity is...

Which of the following statements is correct for a given company?

a.The cost of equity is greater than the cost of debt.
b.The WACC is greater than the cost of equity.
c.The cost of retained earnings exceeds the cost of new common stock.
d.The WACC is not affected by taxes.

Expert Solution

Answer- c.The cost of retained earnings exceeds the cost of new common stock

Explanation:

Rahul Sunny answered 2 years ago

Which of the following statements is correct? a. A firm’s equity is similar to a call...

Which of the following statements is correct? a. A firm’s equity is similar to a call option with the value of the preferred stock being the strike price. b. Someone who buys a straddle position is anticipating that the stock will experience significant price changes. c. Buying a put can be considered to be a form of life insurance. d. Price volatility is not a major factor in valuing options. e. The maximum value a long put can take is...

Which of the following statements about the cost of capital is CORRECT ?

Which of the following statements about the cost of capital is CORRECT ?Select one:a. Both the cost of debt and equity financing will decrease when a firm expands into a risky new area.b. Both the cost of debt and equity financing will decrease when a nuclear plant company encounters a ban on nuclear power generation in certain states.c. The WACC of a firm will decrease when investors become more risk averse.d. Both the cost of debt and equity financing will...

Which of the following statements is (are) correct? (x) If the cost of an investment is...

Which of the following statements is (are) correct? (x) If the cost of an investment is $20,000 and the annual sales from the investment is 12.5 percent of the cost, then the payback period is 8.0 years. (y) It is always possible to determine a payback period when the cash inflows from the project are uneven as long as the cash inflows exceed the cost of the project. (z) If the discounted payback period for a given project is longer...

Which is lower for a given company: the cost of debt or the cost of equity?...

Which is lower for a given company: the cost of debt or the cost of equity? Explain. Ignore taxes in your answer. Include a discussion of the risk-return relationship and how this factors into an investor's decision to select and investment for their portfolio.

Which of the following statements is CORRECT? a. A sunk cost is any cost that must be...

Which of the following statements is CORRECT? a. A sunk cost is any cost that must be expended in order to complete a project and bring it into operation. b. A sunk cost is a cost that was incurred and expensed in the past and cannot be recovered regardless of whether the project is accepted or rejected. c. A sunk cost is any cost that was expended in the past but can be recovered if the firm decides not to go forward with...

Which of the following statements is leastcorrect?a.The word “incurred” is not defined in...

Which of the following statements is leastcorrect?a.The word “incurred” is not defined in income tax legislation.b.The word “incurred” for tax purposes is associated with expenses.c.Ordinary income is included in a taxpayer’s assessable income when it is derived.d.The word “derived” for tax purposes is associated with income.e.The word “derived” gets its meaning from income tax legislation.

Which of the following statements is most correct? a) Statement of stockholders’ equity shows by how...

Which of the following statements is most correct? a) Statement of stockholders’ equity shows by how much a firm's total assets has changed during the year and why this change occurred. b) Net operating profit after taxes is profit a company would generate after factoring in interest payments on debt. c) Free cash flow is the amount of operating income that can be used to pay obligations as well as provide a return to shareholders. d) Depreciation, a non-cash charge,...

Which of the following statements is correct regarding cost curves? There is more than one correct...

Which of the following statements is correct regarding cost curves? There is more than one correct answer to this question. You must mark all of the correct answers to receive full credit for this question. The average fixed cost curve is continually downward sloping. The slope of the total cost curve is marginal cost. The marginal cost curve passes through the minimum points of the average total cost curve and average fixed cost curve. The average total cost curve and...

Which of the following statement are correct? A.The set of affordable bundles will not change all...

Which of the following statement are correct? A.The set of affordable bundles will not change all prices and income income increase by thsane factor. B.An increase in every price by 25% is equivalent to a 25%decrease of income at constant prices. C.The set of affordable bundles decreases if the budget line becomes steeper. D.An increase in every price by 20% is equivalent to a 25%decrease in income at constant prices. E.An ncrease in every price by 25% is equivalent to...

Which of the following statements is (are) correct?

10. which of the following statements is (are) correct?(x) When the government runs a budget deficit, investment is lower than it would be otherwise because interest rates are higher than they would be otherwise.(y) A reduction in the budget deficit would cause a shortage of loanable funds at the original interest rate, and as a result, interest rates would rise.(z) When the government runs a budget deficit, national saving is higher than it would be otherwise.A. (x), (y) and (z)B....

Question