Which of the following statements is correct?
A) The weighted average cost of capital is calculated on a before-tax basis.
B) An increase in the market risk premium is likely to increase the weighted average cost of capital.
C) The weights of debt and equity should be based on the balance sheet because this is the most accurate assessment of the valuation.
D) All of these choices are correct.

Question

Quizplus · Accepted Answer

An increase in the market risk premium increases the cost of equity. Since the weighted average cost of capital (WACC) includes the cost of equity, an increase in the market risk premium would likely increase the WACC.

Which of the Following Statements Is Correct