Which of the following statements are true?
I. Pre-tax cost of debt is generally higher than the pre-tax cost of equity
II. Interest is tax deductible
III. Preferred dividends are tax deductible
IV. Total cost of capital is normally less 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

Quizplus · Accepted Answer

Interest is tax deductible, reducing the effective cost of debt. Total cost of capital is typically less than or equal to the cost of equity because equity is riskier than debt.

Which of the Following Statements Are True