Question 2 (1 point)

Which of the following statements is correct?

Question 2 options:

	The cost of new equity (re) could possibly be lower than the cost of retained earnings (rs) if the market risk premium, risk-free rate, and the companys beta all decline by a sufficiently large amount.
	The component cost of preferred stock is expressed as rp(1 T), because preferred stock dividends are treated as fixed charges, similar to the treatment of interest on debt.
	Its cost of retained earnings is the rate of return shareholders require on a firms common stock.
	We should use historical measures of the component costs from prior financings when estimating a companys WACC for capital budgeting purposes.