QUESTION 13

Which of the following statements is CORRECT? (Hint: Take a look at the WACC equation and the equations for the component costs of capital. It should become much clearer to you.)

	A.	All else equal, an increase in a companys stock price will increase its marginal cost of new common equity, re.
	B.	If a companys tax rate increases but the YTM of its noncallable bonds remains the same, the after-tax cost of its debt will fall.
	C.	When calculating the cost of preferred stock, a company needs to adjust for taxes, because preferred stock dividends are tax deductible.
	D.	All else equal, an increase in a companys stock price will increase its marginal cost of retained earnings, rs.
	E.	Since the money is readily available, the after-tax cost of retained earnings is usually much lower than the after-tax cost of debt.