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Question(s) / Instruction(s):

Which of the following statements is CORRECT?

A   The WACC is calculated using before-tax costs for all components.

B   The after-tax cost of debt usually exceeds the after-tax cost of equity.

C   For a given firm, the after-tax cost of debt is always more expensive than the after-tax cost of preferred stock.

D   Retained earnings that were generated in the past and are reflected on the firm’s balance sheet are generally available to finance the firm’s capital budget during the coming year.

E   The WACC that should be used in capital budgeting is the firm’s marginal, after-tax cost of capital.

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