Which of these makes this a true statement? The WACC formula
A) is not impacted by taxes.
B) uses the after-tax costs of capital to compute the firm's weighted average cost of debt financing.
C) uses the pre-tax costs of capital to compute the firm's weighted average cost of debt financing.
D) focuses on operating costs only to keep them separate from financing costs.

Question

Quizplus · Accepted Answer

The WACC (Weighted Average Cost of Capital) formula incorporates the after-tax costs of capital to compute the firm's weighted average cost of debt financing. This is because interest expenses on debt are tax-deductible, which reduces the effective cost of debt to the firm.

Which of These Makes This a True Statement? the WACC