Which two of the following are correct, in a world with tax but no distress costs, when the capital of a company is almost entirely made up of debt?
A) WACC is at its highest.
B) Corporate value is at its highest.
C) Corporate value is at its lowest.
D) WACC is at its lowest.

Question

Quizplus · Accepted Answer

In a world with taxes but no distress costs, the tax shield from debt increases the corporate value, and the WACC is minimized due to the tax deductibility of interest.

Which Two of the Following Are Correct, in a World