WACC before tax does not depend on the firm's leverage ratio, but WACC after tax decreases...
WACC before tax does not depend on the firm's leverage ratio, but WACC after tax decreases as the firm's leverage ratio increases?
True or false?
Homework Answers
FALSE.
WACC before tax is given by = (Cost of Equity * Weight of Equity) + (Cost of Debt before tax * Weight of Debt)
So if the Leverage is increased the WACC increases and if decreases WACC also decreases. Sp WACC depends on Leverage Ratio but WACC after tax decreases as the firm's leverage ratio increases. This is true. Since the Debt has tax shielding benefits. Increase in Leverage Ratio will reduce the after tax WACC.
NOTE: The answer to your question has been given below/above. If there is any query regarding the answer, please ask in the comment section. If you find the answer helpful, do upvote. Help us help you.
Add Answer to:
WACC before tax does not depend on the firm's leverage ratio,
but WACC after tax decreases...
1. The after-tax cost of debt is higher than the before-tax cost of debt. True or...
1. The after-tax cost of debt is higher than the before-tax cost of debt. True or False 2. The constant dividend growth model and CAPM are two ways of estimating a firm's cost of equity. True or False 3. The cost of capital uses the amounts of total assets and debt as the capital structure weights. True or False 4. In deriving the WACC, market values are preferred over book values for the capital structure weights. True or False 5....
Which statement is true: As the WACC decreases, the NPV increases As the WACC decreases, the...
Which statement is true: As the WACC decreases, the NPV increases As the WACC decreases, the NPV decreases As the WACC increases, the NPV increases The NPV is not impacted by changes in WACC
True or False question The after-tax cost of debt generally increases when a firm's bond rating...
True or False question The after-tax cost of debt generally increases when a firm's bond rating decreases. The weighted average cost of capital for a firm is the discount rate which the firm should apply to all of the projects it undertakes. Assigning discount rates to individual projects based on the risk level of each project may cause the firm's overall weighted average cost of capital to either increase or decrease over time. Other things being equal, the weighted average...
1. According to M&M Proposition II without taxes, a firm's cost of equity is a function...
1. According to M&M Proposition II without taxes, a firm's cost of equity is a function of the required rate of return on the firm's assets, the firm's debt/equity ratio, and the firm's cost of debt. True or False 2. When EBIT is positive, high leverage decreases the returns to shareholders (as measured by ROE). true or false 3. All else the same, taxes and bankruptcy claims on the cash flows of the firm will tend to increase with decreases...
Suppose the debt ratio (D/TA) is 10%, the current (before-tax) cost of debt is 8%, the...
Suppose the debt ratio (D/TA) is 10%, the current (before-tax) cost of debt is 8%, the current cost of equity is 16%, and the tax rate is 40%. An increase in the debt ratio to 20% would have decreased the weighted average cost of capital (WACC). true or false?
A firm's decision to hire a factor of production DOES NOT depend on which of the...
A firm's decision to hire a factor of production DOES NOT depend on which of the following? The price of the product produced by the factor input в ) The average product of the factor input (c) The price of the factor input The demand for the product the factor produces The marginal product of the factor input Which of the following will occur in a given labor market when the wage rate rises? The quantity demanded of labor will...
7. Calculate a firm's approximate WACC given that the debt-to-equity ratio is 3, the cost of...
7. Calculate a firm's approximate WACC given that the debt-to-equity ratio is 3, the cost of debt is 8%, the cost of equity is 15%, and the firm's marginal tax rate is 30%: WACC ............
The use of leverage: Multiple Choice points C) decreases the equity beta but does not affect...
The use of leverage: Multiple Choice points C) decreases the equity beta but does not affect the asset beta eBook References increases the equity beta but does not affect the asset beta. decreases the equity beta and increases the asset beta. increases both the asset and the equity betas. decreases both the asset and the equity betas.
All other inputs constant, if a firm's tax rate decreases and they use debt in their...
All other inputs constant, if a firm's tax rate decreases and they use debt in their capital structure, their WACC will __________. A. increase B. decrease C. stay the same
3. How does the complexity of a learnable class depend on the parameters ε and δ?...
3. How does the complexity of a learnable class depend on the parameters ε and δ? Classify the following as true or false and justify. a) mH increases (in the non-strict sense) as ε decreases with δ fixed; b) rnH increases (in the non-strict sense) as δ increases with ε fixed; c) It seems reasonable that, in a typical situation, lim m H (ε, δ)-+00
A firm's decision to hire a factor of production DOES NOT depend on which of the following? The price of the product produced by the factor input в ) The average product of the factor input (c) The price of the factor input The demand for the product the factor produces The marginal product of the factor input Which of the following will occur in a given labor market when the wage rate rises? The quantity demanded of labor will...
7. Calculate a firm's approximate WACC given that the debt-to-equity ratio is 3, the cost of debt is 8%, the cost of equity is 15%, and the firm's marginal tax rate is 30%: WACC ............
The use of leverage: Multiple Choice points C) decreases the equity beta but does not affect the asset beta eBook References increases the equity beta but does not affect the asset beta. decreases the equity beta and increases the asset beta. increases both the asset and the equity betas. decreases both the asset and the equity betas.
3. How does the complexity of a learnable class depend on the parameters ε and δ? Classify the following as true or false and justify. a) mH increases (in the non-strict sense) as ε decreases with δ fixed; b) rnH increases (in the non-strict sense) as δ increases with ε fixed; c) It seems reasonable that, in a typical situation, lim m H (ε, δ)-+00
Most questions answered within 3 hours.
-
1. When a nearsighted person looks at an object that is in the
distance with their...
asked 17 minutes ago -
QUESTION 8
Both of these statements will store the same value in the
variable $number
$number...
asked 41 minutes ago -
The price of 1 lb of potatoes is $1.75. If all the potatoes sold
today at...
asked 1 hour ago -
Garcia Company issues 20.00%, 15-year bonds with a par value of
$470,000 and semiannual interest payments....
asked 1 hour ago -
In C++ Programming, Try using loops only.
This lab demonstrates the use of the While Loop...
asked 2 hours ago -
Effect of DCMU and sodium azide on Chlamydomonas? We did an
experiment where we had Chlamydomonas...
asked 3 hours ago -
1a) According to the ideal gas law, _______________.
a. a gas has infinite volume at absolute...
asked 4 hours ago -
Oakdale Fashions, Inc. had $245,000 in 2018 taxable income.
Using the tax schedule in Table 2.3...
asked 4 hours ago -
The marketing class at CSUS had an average score of 150. An
educational analyst determined that...
asked 6 hours ago -
Justin Case has purchased a $250 000 home by putting 20 % down
and taking out...
asked 6 hours ago -
1. In a labor market, marginal cost for a firm is
____________.
a. recruiting cost
b....
asked 6 hours ago -
On January 1, 2019, ABC Company issued $60,000,000 of 20-year,
10.5% bonds when the market rate...
asked 7 hours ago