Which One of the Following Statements Is Correct Concerning the Weighted

question 369

Multiple Choice

Which one of the following statements is correct concerning the weighted average cost of capital (WACC) ?

• A) The pre-tax rate of return on the debt is the rate that is relevant to the computation of the WACC.
• B) When computing the WACC, the weight assigned to the preferred stock is equal to the coupon rate multiplied by the par value assigned to the preferred stock.
• C) A firm's WACC will decrease as their corporate tax rate decreases.
• D) The weight of the common stock used in the computation of the WACC is based on the number of shares outstanding multiplied by the book value per share.
• E) The weight of the debt can be based on the face value of the bond issue(s) outstanding multiplied by the quoted price(s) when expressed as a %age of the face value.

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Definitions:

Predictor Variable

A variable that is used in statistical models to predict the outcome of a response variable.

Second-Order Model

involves equations that account for acceleration in dynamics, incorporating second derivatives in their formulation.

Predictor Variables

Variables in a statistical model that are used to predict or explain changes in the response variable.

With Interaction

A term indicating that the effect of one variable on a response variable depends on the level of another variable.