The cost of debt,r_d,is always less than r_s,so r_d(1 − T)will certainly be less than r_s.Therefore,since a firm cannot be 100% debt financed,the weighted average cost of capital will always be greater than r_d(1 − T).

Question

Quizplus · Accepted Answer

This is true because the cost of debt is typically lower than the cost of equity, due to the tax shield provided by interest payments being tax deductible. However, since a firm cannot be completely debt financed, the weighted average cost of capital (which includes both debt and equity) will always be higher than the cost of debt adjusted for taxes.

The Cost of Debt,rd,is Always Less Than Rs,so Rd(1 −

The Cost of Debt,r_d,is Always Less Than R_s,so R_d(1 −