A Company Has a Capital Structure That Consists of 50

question 121

Multiple Choice

A company has a capital structure that consists of 50% debt and 50% equity. Which of the following is generally true?

• A) The weighted average cost of capital is less than the cost of equity financing.
• B) The cost of equity financing is greater than the cost of debt financing.
• C) The weighted average cost of capital is calculated on a before-tax basis.
• D) Both A and B.

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Definitions:

Laissez-Faire Policy

An economic philosophy of free-market capitalism that opposes government intervention.

Tax Rates

The percentage at which an individual or corporation is taxed, which can vary by income or profit level, type of tax, and jurisdiction.

Zero Tax Revenue

A theoretical or policy situation where the government sets tax rates at levels that result in no revenue being collected, often discussed in contexts of extreme tax models.

Velocity of Money

Velocity of money is the rate at which money circulates in the economy, typically measured as the ratio of nominal GDP to the money supply.