For a typical firm, which of the following sequences is CORRECT? All rates are after taxes, and assume that the firm operates at its target capital structure.
A) re rs wacc rd.
B) wacc re rs rd.
C) rd re rs wacc.
D) wacc rd rs re.
E) rs re rd wacc.

Question

For a typical firm, which of the following sequences is CORRECT? All rates are after taxes, and assume that the firm operates at its target capital structure.
A) re > rs > wacc > rd.
B) wacc > re > rs > rd.
C) rd > re > rs > wacc.
D) wacc > rd > rs > re.
E) rs > re > rd > wacc.

Quizplus · Accepted Answer

The cost of equity (re) is typically higher than the cost of retained earnings (rs), which is higher than the weighted average cost of capital (wacc), and the cost of debt (rd) is usually the lowest because interest is tax-deductible.

For a Typical Firm, Which of the Following Sequences Is