Consider the Following Formula

question 77

Multiple Choice

Consider the following formula:
R_wacc =
R_E +
R_D -
R_Dτ_c
The terms
R_E +
R_D represent:

• A)the after-tax WACC.
• B)the reduction due to equity financing.
• C)the before-tax WACC.
• D)the reduction due to the interest tax shield.

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Definitions:

Operating Leverage

A measure of how much a company can increase its operating income by increasing revenue, indicating the ratio of fixed costs to variable costs.

EBIT

Earnings Before Interest and Taxes; a measure of a company's profitability that focuses on earnings generated from its core operations before the impact of financial and tax activities.

Business Risk

The exposure a company or investor faces due to uncertainties in the market or industry that could affect its profitability.

Fixed Assets Turnover Ratio

A financial metric that measures a company's ability to generate sales from its fixed assets, such as property, plant, and equipment.