Which of the following statements is CORRECT?
A. All else equal, an increase in a company's stock price will increase its marginal cost of reinvested earnings (not newly issued stock), rs.
B. All else equal, an increase in a company's stock price will increase its marginal cost of new common equity, re.
C. 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.
D. 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.
E. When calculating the cost of preferred stock, a company needs to adjust for taxes, because preferred stock dividends are deductible by the paying corporation.
Answer: D
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