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Which of the following statements is correct?
A. Flotation costs must be included in the component cost of preferred stock.
B. If a company with a debt ratio of 50 percent were suddenly exempted from all future income taxes, then, all other things held constant, this would cause its WACC to increase.
C. The cost of retained earnings is generally higher than the cost of new common stock.
D. When the MCC (Marginal Cost of Capital) schedule is developed, the first break point always occurs as a result of using up retained earnings.
E. The WACC (Weighted Average Cost of Capital) should include only after-tax component costs.
Therefore, the required rates of return on debt, preferred, and common equity must be adjusted to an after-tax basis before they are used in the WACC equation.
Answer: B
Explanation:
Explanation/Reference:
Explanation:
If a firm paid no income taxes, its cost of debt would not be adjusted downward, hence the component cost of debt would be higher than if T (the firm's marginal tax rate) were greater than 0. With a higher component cost of debt, the WACC would be increased. Of course, the company would have higher earnings, and its cash flows from a given project would be high, so the higher WACC would not impede its investments, i.e., its capital budget would be larger than if it were taxed.
Which of the following statements is INCORRECT about the AR router prefix?
A. The prefix is a subset of a called number but cannot be the called number.
B. The prefix is used to identify the service attribute (basic service or supplementary service; intra-office call, national toil call, or C. international toll call) of the dialing rule.
C. A prefix is also called a call prefix and is used to define the number rule for call connection.
D. The prefix determines the range of dialed number length. In addition, the prefix attributes can be used to control the call rights.
Answer: A
A. Option B
B. Option D
C. Option C
D. Option A
Answer: C
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