Because the value of a firm's stock depends on the after-tax cash flows it generates during its life, after-tax component costs of capital (i.e., the after-tax cost of debt) are used when computing a firm's weighted average cost of capital (WACC).

Question

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The statement is true. WACC is calculated based on after-tax component costs of capital, which includes the after-tax cost of debt. This is because the value of a firm's stock is ultimately determined by the after-tax cash flows it generates.

Because the Value of a Firm's Stock Depends on the After-Tax