Which of the following statements is most correct?
A) Suppose a firm is losing money and thus, is not paying taxes, and that this situation is expected to persist for a few years whether or not the firm uses debt financing. Then the firm's after-tax cost of debt will equal its before-tax cost of debt.
B) The component cost of preferred stock is expressed as rps(1 - T), because preferred stock dividends are treated as fixed charges, similar to the treatment of debt interest.
C) The reason that a cost is assigned to retained earnings is because these funds are already earning a return in the business; the reason does not involve the opportunity cost principle.
D) The bond-yield-plus-risk-premium approach to estimating a firm's cost of common equity involves adding a subjectively determined risk-premium to the market risk-free bond rate.
E) All of the statements above are false.

Question

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The Answer of Which of the following statements is most correct?
A) Suppose a firm is losing money and thus, is not paying taxes, and that this situation is expected to persist for a few years whether or not the firm uses debt financing. Then the firm's after-tax cost of debt will equal its before-tax cost of debt.
B) The component cost of preferred stock is expressed as rps(1 - T), because preferred stock dividends are treated as fixed charges, similar to the treatment of debt interest.
C) The reason that a cost is assigned to retained earnings is because these funds are already earning a return in the business; the reason does not involve the opportunity cost principle.
D) The bond-yield-plus-risk-premium approach to estimating a firm's cost of common equity involves adding a subjectively determined risk-premium to the market risk-free bond rate.
E) All of the statements above are false.

Which of the Following Statements Is Most Correct