Which of the following statements is correct?
A)The WACC measures the before-tax cost of capital.
B)An increase in the firm's marginal corporate tax rate will decrease the weighted average cost of capital.
C)Flotation costs can decrease the weighted average cost of capital.
D)None of these statements is correct.

Question

Quizplus · Accepted Answer

An increase in the firm's marginal corporate tax rate decreases the WACC because the tax shield on debt interest payments increases, effectively reducing the after-tax cost of debt.

Which of the Following Statements Is Correct