7. Campbell Co. is trying to estimate its weighted average cost of capital (WACC). Which of the following statements is most correct? a. The after-tax cost of debt is generally cheaper than the after-tax cost of preferred stock. b. Since retained earnings are readily available, the cost of retained earnings is generally lower than the cost of debt. c. If the company’s beta increases, this will increase the cost of equity financing, even if the company is able to rely on only retained earnings for its equity financing. d. Statements a and b are correct. e. Statements a and c are correct. 8. Wyden Brothers has no retained earnings. The company uses the CAPM to calculate the cost of equity capital. The company’s capital structure consists of common stock, preferred stock, and debt. Which of the following events will reduce the company’s WACC?9. Which of the following statements is most correct? 10. A company has a capital structure that consists of 50 percent debt and 50 percent equity. Which of the following statements is most correct?
Chapter 10 - Page 311. A firm estimates that its proposed capital budget will force it to issue new common stock, which has a greater cost than the cost of retained earnings. The firm, however, would like to avoid issuing costly new common stock. Which of the following steps would mitigate the firm’s need to raise new common stock? a. Increasing the company’s dividend payout ratio for the upcoming year.b. Reducing the company’s debt ratio for the upcoming year.c. Increasing the company’s proposed capital budget.d. All of the statements above are correct. e.None of the statements above is correct.
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