Which of the following statements is CORRECT?
A) The after-tax cost of debt usually exceeds the after-tax cost of equity.
B) For a given firm, the after-tax cost of debt is always more expensive than the after-tax cost of non-convertible preferred stock.
C) Retained earnings that were generated in the past and are reported on the firm's balance sheet are available to finance the firm's capital budget during the coming year.
D) The required return on debt used in calculating a firm's WACC should be based on the debt's current required return even if it is higher than the debt's coupon rate.
E) The WACC is calculated using before-tax costs for all components.

Question

Quizplus · Accepted Answer

The required return on debt should reflect the current market conditions, which is why the current required return is used in WACC calculations, even if it differs from the coupon rate.

Which of the Following Statements Is CORRECT