Which of the Following Statements Is Correct

question 129

Multiple Choice

Which of the following statements is correct?

• A) All component costs in a firm's weighted average cost of capital must reflect after-tax costs, but the only component that requires an adjustment for taxes is the cost of new common stock.
• B) An increase in the marginal corporate tax rate would lower the weighted average cost of capital for the firm, other things held constant.
• C) The cost of debt is equal to one minus the marginal tax rate multiplied by the coupon rate on outstanding debt.
• D) The WACC is the sum of the Fed Funds rate and the firm's bond coupon rate.

---

Definitions:

Sample Mean

The arithmetic average of a sample set of data, used to estimate the population mean.

Normally Distributed

Describes a data set that follows a bell-shaped curve where most observations cluster around the mean and probabilities for values taper off symmetrically towards both extremes.

Standard Deviation

Standard deviation is a measure of the amount of variation or dispersion of a set of values, indicating how much the values in the set differ from the mean.

Random Samples

A sample from a population that is chosen in such a way that every member of the population has an equal chance of being selected.