Which of the following statements is CORRECT?
A) wacc calculations should be based on the before-tax costs of all the individual capital components.
B) flotation costs associated with issuing new common stock normally reduce the wacc.
C) if a company's tax rate increases, then, all else equal, its weighted average cost of capital will decline.
D) an increase in the risk-free rate will normally lower the marginal costs of both debt and equity financing.
E) a change in a company's target capital structure cannot affect its wacc.

Question

Quizplus · Accepted Answer

Statement c is true, because the cost of debt for WACC purposes = rd(1 σ T), so if T increases, then rd(1 σ T) declines.

Which of the Following Statements Is CORRECT