Which Statement About WACC Is True

question 21

Multiple Choice

Which statement about WACC is true?

• A)A change in a company's target capital structure cannot affect its WACC.
• B)WACC calculations should be based on the before-tax costs of all the individual capital components.
• C)Flotation costs associated with issuing new common stock normally reduce the WACC.
• D)If a company's tax rate increases, then, all else equal, its WACC will decline.

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Definitions:

Retained Earnings

Retained earnings are the portion of a company's profits that is kept or retained within the business for reinvestment or to pay debt, rather than being distributed to shareholders as dividends.

Liability

A company's legal financial debts or obligations that arise during the course of business operations.

Dividends

Regular payments made by a corporation to its shareholders out of its profits or reserves.

Shareholders

Persons or organizations that possess stock in a corporation, thus holding a stake in the business.