Which of the Following Statements Is CORRECT

question 19

Multiple Choice

Which of the following statements is CORRECT?

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

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Definitions:

Company's Debt

The total amount of money owed by a company to creditors, including loans, bonds, and other forms of financial liabilities.

End-Of-Period Cash Balance

The amount of cash on hand at the conclusion of a financial reporting period.

End-Of-Period Net Income

The net income calculated at the end of an accounting period, reflecting the total earnings after accounting for all expenses and revenues.

Accounting Recognition

This refers to the process of recording financial transactions in the financial statements according to accepted accounting principles.