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 are correct.

Question

Quizplus · Accepted Answer

An increase in the firm's marginal corporate tax rate will decrease the WACC because the interest expense on debt is tax-deductible, reducing the after-tax cost of debt and thus lowering the WACC.

Which of the Following Statements Is Correct