Which of the following statements is correct?
A) The weighted average cost of capital is calculated on a before-tax basis.
B) An increase in the market risk premium is likely to increase the weighted average cost of capital.
C) The weights of debt and equity should be based on the balance sheet because this is the most accurate assessment of the valuation.
D) All of the statements are correct.

Question

Quizplus · Accepted Answer

An increase in the market risk premium is likely to increase the required rate of return for equity, which will increase the overall weighted average cost of capital. choices A and C are incorrect as the weighted average cost of capital is calculated on an after-tax basis, and weights should be based on market values rather than the balance sheet. Choice D is incorrect as only B is correct.

Which of the Following Statements Is Correct