The cost of debt, rd, is normally less than rs, so rd(1 - T)will normally be much less than rs.Therefore, as long as the firm is not completely debt financed, the weighted average cost of capital (WACC)will normally be greater than rd(1 - T).

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Quizplus · Accepted Answer

This statement is true. The cost of debt, after adjusting for tax (T), is usually lower than the cost of equity (rs). Therefore, since the WACC is calculated as a weighted average of the cost of debt and equity, it will normally be greater than rd(1-T) (the after-tax cost of debt).

The Cost of Debt, Rd, Is Normally Less Than Rs