Which of the following statements is most correct?
A) If a company's tax rate increases but the yield to maturity of its noncallable bonds remains the same, the company's marginal cost of debt capital used to calculate its weighted average cost of capital will fall.
B) All else equal, an increase in a company's stock price will increase the marginal cost of common stock, rs.
C) All else equal, an increase in interest rates will decrease the marginal cost of common stock, rs.
D) Answers a and b are correct.
E) Answers b and c are correct.

Question

Quizplus · Accepted Answer

An increase in the company's tax rate will reduce the after-tax cost of debt, as interest is tax-deductible, thus lowering the marginal cost of debt capital.

Which of the Following Statements Is Most Correct