Which of the following statements is CORRECT? Answer The WACC is calculated usin

Question

Which of the following statements is CORRECT? Answer The WACC is calculated using before-tax costs for all components. The after-tax cost of debt usually exceeds the after-tax cost of equity. For a given firm, the after-tax cost of debt is always more expensive than the after-tax cost of non-convertible preferred stock. Retained earnings that were generated in the past and are reported on the firm's balance sheet are available to finance the firm's capital budget during the coming year. The WACC that should be used in capital budgeting is the firm's marginal, after-tax cost of capital.

Explanation / Answer

The WACC that should be used in capital budgeting is the firm's marginal, after-tax cost of capital.

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