Which of the following is true regarding the weighted-average cost of capital?
A) A company may have two weighted-average costs of capital if the firm's capital structure is so large that new common stock must be sold.
B) The book value of the components of capital should always be used to calculate the weighted-average cost of capital.
C) The cost of common equity is lower than the cost of retained earnings.
D) The cost of preferred stock is adjusted for the tax deduction associated with preferred dividends.

Question

Quizplus · Accepted Answer

If a company's capital structure is so large that new common stock must be issued at different prices, the firm may have two weighted-average costs of capital. One for its existing capital structure and another for the new common stock issuance.

Which of the Following Is True Regarding the Weighted-Average Cost