An increase in a levered firm’s tax rate will:

A. decrease the cost of equity capital.
B. decrease the firm’s cost of capital.
C. decrease the cost of preferred stock.
D. increase the firm’s WACC.
E. increase both the cost of preferred stock and debt.

When the tax rate of a levered firm is increased, there is a decrease in the firm's cost of capital because the value of a levered firm is the sum of the market value of the firm's debt and its equity.

An increased tax rate means it has a greater debt and as such the firm's capital after settling tax debt is very reduced.

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An increase in a levered firm’s tax rate will: A. decrease the cost of equity capital. B. decrease the firm’s cost of capital. C. decrease the cost of preferred stock. D. increase the firm’s WACC. E. increase both the cost of preferred stock and debt.

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An increase in a levered firm’s tax rate will:

A. decrease the cost of equity capital.
B. decrease the firm’s cost of capital.
C. decrease the cost of preferred stock.
D. increase the firm’s WACC.
E. increase both the cost of preferred stock and debt.