Based on M&M Proposition I with taxes, the weighted average cost of capital:
A) is equal to the aftertax cost of debt.
B) has a linear relationship with the cost of equity capital.
C) is unaffected by the tax rate.
D) decreases as the debt-equity ratio increases.
E) is equal to RU(1 − TC).

Question

Quizplus · Accepted Answer

M&M Proposition I with taxes suggests that the weighted average cost of capital (WACC) decreases as the debt-equity ratio increases, due to the tax shield provided by debt financing.

Based on M&M Proposition I with Taxes, the Weighted Average