1. (TRUE or FALSE?) The cost of debt before tax is the required return on our company’s equity, both common and preferred stock, and its required return is best estimated by computing the yield-to-maturity.
2. (TRUE or FALSE?) Flotation costs make the cost of using funds supplied by new stockholders slightly higher than using retained earnings supplied by the existing stockholders.
3. (TRUE or FALSE?) Neither creditors nor preferred stockholders have a claim on the residual earnings.