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JKCPA , CPA
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Experience:  Bachelors degree and CPA with Accounting experience.
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Which of the following statements is CORRECT In the

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Which of the following statements is CORRECT?
In the WACC calculation, we must adjust the cost of preferred stock (the market yield) to reflect the fact that 70% of the dividends received by corporate investors are excluded from their taxable income.
We should use historical measures of the component costs from prior financings when estimating a company's WACC for capital budgeting purposes.
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 company's beta all decline by a sufficiently large amount.
Its cost of retained earnings is the rate of return stockholders require on a firm's common stock.
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.
Submitted: 6 years ago.
Category: Finance
Expert:  JKCPA replied 6 years ago.

HiCustomer

 

Thanks for your question.

 

The answer is Its cost of retained earnings is the rate of return stockholders require on a firm's common stock.

 

Hope this helps!

 

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