What is the theoretical minimum for the weighted average cost of capital?
A) The after-tax cost of debt
B) The cost of preferred stock
C) CAPM
D) The cost of equity

Question

Quizplus · Accepted Answer

The theoretical minimum for the weighted average cost of capital (WACC) is the after-tax cost of debt. This is because debt is generally cheaper than equity, and interest payments are tax-deductible, leading to a lower overall cost of capital. Therefore, using the after-tax cost of debt as the WACC would result in the lowest possible cost of capital for the company.

What Is the Theoretical Minimum for the Weighted Average Cost