Which of the following statements is CORRECT? A) When calculating the cost of preferred stock,a company needs to adjust for taxes,because preferred stock dividends are deductible by the paying corporation. B) All else equal,an increase in a company's stock price will increase its marginal cost of retained earnings,r_s. C) All else equal,an increase in a company's stock price will increase its marginal cost of new common equity,r_e. D) Since the money is readily available,the after-tax cost of retained earnings is usually much lower than the after-tax cost of debt. E) If a company's tax rate increases but the YTM on its noncallable bonds remains the same,the after-tax cost of its debt will fall.

Question

Quizplus · Accepted Answer

Statement e is true,because the after-tax cost of debt is r_d(1 ? T).So,if r_d remains constant but T increases,r_d(1 ? T)will decline.The other statements are all false.

Which of the Following Statements Is CORRECT