Which of the following statements is true?

I. Pretax cost of debt is generally higher than the pretax cost of equity.
II. Interest is tax deductible.
III. Preferred dividends are tax deductible.
IV. Total cost of capital is always greater than or equal to cost of equity.

A)II and IV
B)II, III, and IV
C)I, II, and IV
D)II only

Question

Which of the following statements is true?

I. Pretax cost of debt is generally higher than the pretax cost of equity.
II. Interest is tax deductible.
III. Preferred dividends are tax deductible.
IV. Total cost of capital is always greater than or equal to cost of equity.

A)II and IV
B)II, III, and IV
C)I, II, and IV
D)II only

Quizplus · Accepted Answer

Interest is tax deductible, which makes statement II true. The pretax cost of debt is generally lower than the pretax cost of equity, preferred dividends are not tax deductible, and the total cost of capital is not always greater than or equal to the cost of equity.

Which of the Following Statements Is True