The BongoBongo Drum Co. uses debt and equity in its capital structure and has positive earnings.
A decrease in the corporate tax rate would decrease the ﬁrm's WACC.

Name: The BongoBongo Drum Co. uses debt and equity in its capital structure and has positive earnings. A decrease in the corporate tax rate would decrease the ﬁrm's WACC.
Brand: Quizplus
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Question

Quizplus · Accepted Answer

A decrease in the corporate tax rate would reduce the tax shield on debt, potentially increasing the firm's WACC, as the benefit of debt financing is reduced.