Which One of the Following Statements Is Correct Concerning the Weighted

question 11

Multiple Choice

Which one of the following statements is correct concerning the weighted average cost of capital (WACC) ?

• A) The pre-tax rate of return on the debt is the rate that is relevant to the computation of the WACC.
• B) When computing the WACC, the weight assigned to the preferred stock is equal to the coupon rate multiplied by the par value assigned to the preferred stock.
• C) A firm's WACC will decrease as their corporate tax rate decreases.
• D) The weight of the common stock used in the computation of the WACC is based on the number of shares outstanding multiplied by the book value per share.
• E) The weight of the debt can be based on the face value of the bond issue(s) outstanding multiplied by the quoted price(s) when expressed as a percentage of the face value.

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Definitions:

Finished Goods

The final products that are completed and ready for sale to customers.

Job-Order Costing

An accounting methodology used to assign manufacturing costs to individual units or batches of production, based on the jobs performed.

Predetermined Overhead Rate

A rate calculated before a period begins, used to allocate manufacturing overhead costs to products.

Machine-Hours

A measure of production time, referring to the total number of hours machines are operated during a specific period.