Corporate Finance Q80
0. Which of the following statements is most likely true?
- A
The investment opportunity schedule, for a given company, is upward sloping because as a company invests more in capital projects, the returns from investing keep on increasing.
- B
In order to determine the after-tax cost of debt, the appropriate tax rate to use is the average rate.
- C
The after-tax debt cost, for a given company, is generally less than both the cost of preferred equity and the cost of common equity.
- Option : C
- Explanation : Generally, debt is less costly than both preferred and common stock. If interest expense is tax deductible, then the cost of debt is further reduced.
