Common stock is greater than cost of common stock

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Reference no: EM131011587

True or False

a. Firms in stable industries are advised to keep debt levels very low so that shareholders, rather than creditors, receive the benefits of steady cash flows.

b. Although the after-tax cost of debt is below the cost of equity, firms cannot increase their use of debt without limit.

c. The cost of debt is equal to the current bond yield on bonds of similar risk class and adjusted for the corporate tax rate.

d. The cost of new common stock is greater than the cost of outstanding common stock.

e. Most firms are able to use 60%-70% debt in their capital structure without exceeding norms acceptable to most creditors and investors

f. Market values rather than book values should be used for determining the optimal capital structure, though in practice, book value is commonly used.

g. A firm's cost of preferred stock is equal to the preferred dividend divided by market price plus the dividend growth rate (Kp= D/Po+ g).

Reference no: EM131011587

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