The Difference Between the Weighted-Average Cost of Capital (WACC)and the Pre-Tax

question 62

Multiple Choice

The difference between the weighted-average cost of capital (WACC) and the pre-tax (unlevered) WACC is:

• A)the weighted-average cost of capital is based on the after-tax cost of equity and the pre-tax WACC is based on the after-tax cost of debt.
• B)the weighted-average cost of capital multiplies the cost of equity and the cost of debt by (1-tax rate)and the pre-tax WACC does not.
• C)the weighted-average cost of capital multiplies the cost of debt by (1-tax rate)and the pre-tax WACC does not.
• D)the weighted-average cost of capital multiplies the component costs of equity and debt by their weight in the capital structure,and the pre-tax WACC does not.

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Definitions:

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