There may be a change in the marginal cost of capital curve when
A) the tax rate charged to investors changes.
B) the firm has exhausted its supply of retained earnings.
C) the firm is limited in the amount of depreciation it can take.
D) the tax rate charged to investors changes and the firm has exhausted its supply of retained earnings.

Question

Quizplus · Accepted Answer

The marginal cost of capital curve changes when the firm exhausts its supply of retained earnings because it then needs to seek external financing, which typically has a higher cost.

There May Be a Change in the Marginal Cost of Capital