Which of the following statements is most correct?
A) Capital components are the types of capital used by firms to raise money. All capital comes from one of three components: long-term debt, preferred stock, and equity.
B) Preferred stock does not involve any adjustment for flotation cost since the dividend and price are fixed.
C) The cost of debt used in calculating the WACC is an average of the after-tax cost of new debt and of outstanding debt.
D) The opportunity cost principle implies that if the firm cannot invest retained earnings and earn at least rs, it should pay these funds to its stockholders and let them invest directly in other assets that do provide this return.
E) The cost of common stock, rs, is usually less than the cost of preferred stock.

Question

Quizplus · Accepted Answer

The Answer of Which of the following statements is most correct?
A) Capital components are the types of capital used by firms to raise money. All capital comes from one of three components: long-term debt, preferred stock, and equity.
B) Preferred stock does not involve any adjustment for flotation cost since the dividend and price are fixed.
C) The cost of debt used in calculating the WACC is an average of the after-tax cost of new debt and of outstanding debt.
D) The opportunity cost principle implies that if the firm cannot invest retained earnings and earn at least rs, it should pay these funds to its stockholders and let them invest directly in other assets that do provide this return.
E) The cost of common stock, rs, is usually less than the cost of preferred stock.

Which of the Following Statements Is Most Correct