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:

Corporate Officers

Executives or high-ranking officials within a corporation who are given authority to make decisions and oversee the day-to-day operations and strategic planning of the company.

Robinson-Patman Act

U.S. federal legislation that forbids producers from engaging in practices that prevent fair competition, especially through price discrimination.

Price Discrimination

A pricing strategy where identical or substantially similar goods or services are sold at different prices by the same provider.

Raw Materials

Basic substances or components that are used in the production of goods or finished products.