Based on M&M Proposition II with taxes, the weighted average cost of capital: A)is equal to the aftertax cost of debt. B)has a linear relationship with the cost of equity capital. C)is unaffected by the tax rate. D)decreases as the debt-equity ratio increases. E)is equal to R_U * (1 - T_C).

Question

Quizplus · Accepted Answer

With taxes, the weighted average cost of capital (WACC) decreases as the debt-equity ratio increases due to the tax shield on debt.

Based on M&M Proposition II with Taxes, the Weighted Average