Question

Wd X The weighted Average Cost of Capital: WACC - Wexlegurity . Wp X preferred stock Debt (1-1.). The below is true about the WACC calculation EXCEPT Select one: a. The cost of debt (Deb) is multiplied by (1 - TC) because interest expense is tax- deductible O b. The market values of equity & debt (and not the book values) are used in determining the weights of equity (we) & debt (wo). O cIt incorporates the cost of equity and cost of debt O d. It incorporates cost of debt only and not cost of equity The below is Ime about the Reta in the Capital Accotc Pricing AD

Answer 1

Answer:d.It incorporates cost of debt only and not cost of equity

This is the only false statement the rest are true

WACC=%of debt*cost of debt(1-tax)+%of equity*cost of equity+%of preferred stock*cost of preferred stock

The Weighted average cost of capital is the cost incurred by the firm while raising capital through debt and equity financing.

Other options explained

The cost of debt is multiplied by t(1-tax ) because interest expense is tax deductible

True.In the WACC calculation the after tax cost of debt is factored in so this statement is true

The market values of equity and debt(not book values)are used in determining the weights of equity and debt

True.In determining the the weights of equity and debt for WACC calculation the market value of debt and equity are ued.

It incorporates the cost of debt and the cost of equity

True.The WACC incorporates the cost incurred by the company to raise capital via both debt and equity financing.