What is the theoretical minimum for the weighted average cost of capital?
A) the after-tax cost of debt
B) the cost of preferred stock
C) CAPM
D) the cost of equity

Question

Quizplus · Accepted Answer

The theoretical minimum for the weighted average cost of capital (WACC) is the after-tax cost of debt. This is because debt is generally less expensive than equity due to the tax deductibility of interest expenses, making the after-tax cost of debt typically the lowest component of WACC.

What Is the Theoretical Minimum for the Weighted Average Cost