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Which of the Following Statements Is True

Question 50

Multiple Choice

Which of the following statements is true?

A) When using CAPM to estimate a WACC, personal taxes are not deducted since the corporation must compensate investors for the extra tax obligations they incur.
B) When using CAPM to estimate a WACC, the expected return on the market portfolio should be the expected return on a stock market index (e.g., the 500 Index) when
Calculating the cost of equity capital, and it should be the expected return on a bond
Market index when calculating the cost of debt capital.
C) When calculating the WACC, the promised, after-tax return on debt should be used.
D) When using CAPM to estimate a WACC, you should use the relevant, after-tax risk-free rate and the after-tax expected return on the market, taking both corporate and personal
Tax rates into account.