Which of the following statements is most correct?
A) One purpose of calculating the WACC is to have a singular cost of capital measure that can be applied to evaluate all of the firm's projects,including those of greater than and lesser than average risks.
B) A firm facing a steep demand curve (that is,high flotation costs)for new equity would likely also face,at some point,a steeply upward sloping WACC curve.
C) A breakpoint is based on the dollar value used of a specific type of capital,and occurs at the point where the cost of that capital type increases.Thus,if a firm has $100,000 in earnings,and stockholders want $50,000 of those earnings paid as dividends,then retained earnings will have two breakpoints.
D) Answers a and b are both correct.
E) All of the above are false.

Question

Quizplus · Accepted Answer

A steep demand curve for new equity, indicating high flotation costs, can lead to a situation where additional financing becomes progressively more expensive, thus potentially leading to a steeply upward sloping WACC curve as more capital is raised.

Which of the Following Statements Is Most Correct