Which of the following statements is CORRECT? Answer A change in a company\'s ta

Question

Which of the following statements is CORRECT?
Answer

A change in a company's target capital structure cannot affect its WACC.

WACC calculations should be based on the before-tax costs of all the individual capital components.

Flotation costs associated with issuing new common stock normally reduce the WACC.

If a company's tax rate increases, then, all else equal, its weighted average cost of capital will decline.

An increase in the risk-free rate will normally lower the marginal costs of both debt and equity financing.

Explanation / Answer

WACC calculations should be based on the before-tax costs of all the individual capital components. False Flotation costs associated with issuing new common stock normally reduce the WACC. False If a company's tax rate increases, then, all else equal, its weighted average cost of capital will decline. True An increase in the risk-free rate will normally lower the marginal costs of both debt and equity financing. false

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