The cost of debt, r_d, is normally less than r_s, so r_d(1 − T) will normally be much less than r_s.Therefore, as long as the firm is not completely debt financed, the weighted average cost of capital (WACC) will normally be greater than r_d(1 − T).

Question

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The statement is true. The cost of debt after tax is usually lower than the cost of equity, therefore a weighted average cost of capital that includes both debt and equity will normally be greater than the cost of debt after tax.

The Cost of Debt, Rd, Is Normally Less Than Rs

The Cost of Debt, R_d, Is Normally Less Than R_s