Which of the Following Statements Is True

question 18

Multiple Choice

Which of the following statements is true?

• A)When using CAPM to estimate a WACC, personal taxes are not deducted since the corporation must compensate investors for the extra tax obligations they incur.
• B)When using CAPM to estimate a WACC, the expected return on the market portfolio should be the expected return on a stock market index (e.g., the 500 Index)when Calculating the cost of equity capital, and it should be the expected return on a bond Market index when calculating the cost of debt capital.
• C)When calculating the WACC, the promised, after-tax return on debt should be used.
• D)When using CAPM to estimate a WACC, you should use the relevant, after-tax risk-free rate and the after-tax expected return on the market, taking both corporate and personal Tax rates into account.

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