When Computing WACC,you Should Use The

question 9

Multiple Choice

When computing WACC,you should use the:

• A)pretax cost of debt because most corporations pay taxes at the same tax rate.
• B)pretax cost of debt because it is the actual rate the firm is paying its bondholders.
• C)current yield because it is based on the current market price of debt.
• D)aftertax cost of debt because interest is partially,if not fully,tax deductible.
• E)pretax yield to maturity because it considers the current market price of debt.

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Definitions:

Highly Competitive

A market situation featuring a large number of firms vying for consumers’ attention, often leading to lower prices and innovative products.

Perfectly Competitive

A perfectly competitive market is one where there are many buyers and sellers, all selling identical products, with no single buyer or seller able to influence the market price.

Sellers

Participants in a market who offer goods or services for sale.

Zero Profit

A condition in which a firm's total revenues are exactly equal to its total costs, making no economic profit.