Which of the following statements is correct?
A) We should use historical measures of the component costs from prior financings when estimating a company's WACC for capital budgeting purposes.
B) The cost of new equity (re) could possibly be lower than the cost of retained earnings (rs) if the market risk premium, risk-free rate, and the company's beta all decline by a sufficiently large amount.
C) The cost of retained earnings is the rate of return shareholders require on a firm's common stock.
D) The component cost of preferred stock is expressed as rp(1 - T) , because preferred stock dividends are treated as fixed charges, similar to the treatment of interest on debt.
Correct Answer:
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