QUESTION 5 1 points Save Answer Which of the following statements is CORRECT? O

Question

QUESTION 5 1 points Save Answer Which of the following statements is CORRECT? O a. All else equal, an increase in a company's stock price will b. If a company's tax rate increases but the YTM on its noncallable bonds remains the same, the after-tax cost of its debt will fall Oc. All else equal, an increase in a company's stock price will increase its marginal cost of reinvested earnings (not newly issued stock), rs O d. Since the money is readily available, the after-tax cost of reinvested earnings (not newly issued stock) is usually much lower than the after-tax cost of debt. o. when calculating the cost of preferred stock, a company needs to adjust for taxes, because preferred stock dividends are deductible by the paying corporation. QUESTION 6 1 points Save Answer Which of the following statements is CORRECT? O a. During a period when a company is undergoing a change such as increasing its use of leverage or taking on riskier projects, the calculated historical beta may be drastically different from the beta that will exist in the future. b.The beta ofán "average stock," which is also "the market beta,"can change over time, sometimes drastically. Oc. If a newly issued stock does not have a past history that can be used for calculating beta, then we should always estimate that its beta will turn out to be 1.0·This is especially true if the company finances with more debt than the average firm. d. If a company with a high beta merges with a low-beta company, the best estimate of the new merged company's beta is 1.0. e. Logically, it is easier to estimate the betas astociated with capital budgeting projects than the betas associated with stocks, especially if the projects are closely associated with research and development activities.

Explanation / Answer

5.

If a company's tax rate increases but the YTM on its noncallable bonds remains the same, the after-tax cost of its debt will fall.

because interest cost is a tax deductible cost.

the above is answer

6.

DURING a period when a company is undergoing a change such as increasing its use of leverage or taking on riskier projects, the calculated historical beta may be drastically different from the beta that will exist in the future.

the above is the answer

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