question archive Which of the following statements is correct? a
Which of the following statements is correct? a
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Which of the following statements is correct? a. A typical firm's WACC exceeds its cost of equity. b. A change in a company's target capital structure cannot affect its WACC. c. If a company's tax rate increases, then, all else equal, its WACC will increase. d. A firm's cost of reinvested earnings is the rate of return stockholders require on a firm's common stock. e. Higher flotation costs reduce investors' expected returns, and that leads to a reduction in a company's WACC. Your response:
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The cost of reinvested earning of a company is the rate of return the shareholders will require on the common stock of the company so the cost of reinvested earning is generally reflecting the return on the common stock but it will not include the flotation cost.
All the other options are false related to cost of capital and rate of return.
Correct answer is option (D) A firm cost of reinvested earning is the cost of Return stockholder required on a firm common stock.
