Which of the Following Statements Is CORRECT

question 63

Multiple Choice

Which of the following statements is CORRECT?

• A) A change in a company's target capital structure cannot affect its WACC.
• B) WACC calculations should be based on the before-tax costs of all the individual capital components.
• C) Flotation costs associated with issuing new common stock normally reduce the WACC.
• D) If a company's tax rate increases, then, all else equal, its weighted average cost of capital will decline.
• E) An increase in the risk-free rate will normally lower the marginal costs of both debt and equity financing.

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Definitions:

IQ

stands for Intelligence Quotient, a measure of a person's intellectual abilities relative to others, based on performance on standardized tests.

Consistent

Showing steady and uniform characteristics or behavior over a period of time, lacking any significant variation.

Reliable

The extent to which an assessment tool produces consistent and stable results over multiple applications or time periods.

Standardized

The process of making something conform to a standard in order to ensure consistency and comparability.