Which of the following statements is most correct?
A)All component costs in a firm's weighted average cost of capital must reflect after-tax costs, but the only component that requires an adjustment for taxes is the cost of new common stock.
B)An increase in the marginal corporate tax rate would lower the weighted average cost of capital for the firm, other things held constant.
C)The cost of debt is equal to one minus the marginal tax rate multiplied by the coupon rate on outstanding debt.
D)All the above statements are equally true.

Question

Quizplus · Accepted Answer

An increase in the marginal corporate tax rate would lower the weighted average cost of capital because the after-tax cost of debt decreases as the tax shield from interest payments increases.

Which of the Following Statements Is Most Correct