An increase in a corporation's marginal tax rate will decrease the corporation's cost of debt,but have no impact on its cost of preferred stock or cost of common equity.

Question

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An increase in the marginal tax rate will increase the corporation's interest expense tax shield, which will decrease the corporation's cost of debt. However, it will have no impact on the cost of preferred stock or common equity.

An Increase in a Corporation's Marginal Tax Rate Will Decrease