Which of the following statements is most correct?
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A. B. C. D. E.C
Preferred stock dividends are not tax deductible; therefore, the component cost of preferred stock is only k(ps). The risk premium in the bond-yield-plus-risk premium approach would be added to the firm's cost of debt, not the risk-free rate. The first break point does not have to be associated with retained earnings. It could be from other sources of funds such as debt. The choice between preferred stock or common equity financing depends on a number of factors, including required return, flotation costs, management's desired capital structure, etc.