which of the following statements regarding the aftertax cost of debt is accurate? multiple choice it varies inversely with changes in market interest rates. it will generally exceed the cost of equity if the relevant tax rate is zero. it will generally equal the cost of preferred stock if the tax rate is zero. it is unaffected by changes in the market rate of interest. it is highly dependent upon a company's tax rate.

Respuesta :

The aftertax cost of debt ; it is highly dependent upon a company's tax rate.

What is the WACC?

Weighted cost of capital (WACC) measures a company's cost of capital. The cost of financing a company's assets. WACC is a weighted average of the different types of equity (debt, preferred stock, retained earnings and external capital) that a company can use to finance its operations.

The weighted average cost of capital (WACC) is the rate  a company is expected to pay, on average, to all  security holders to fund its assets.  WACC is commonly referred to as a company's cost of capital. The point is that it is decided by the external market, not  management.  WACC represents the minimum rate of return  a company must earn on its existing asset base in order to satisfy  creditors, owners,  other investors, or  invest elsewhere.

Companies raise funds from various sources.Common stock, preferred stock and related rights, direct debt, convertible bonds, exchangeable debt, employee stock options, pension liabilities, officer stock options, government grants, etc. Different securities representing different funding sources  are expected to generate different returns.  WACC is calculated by considering the relative weight of each component of the capital structure. The more complex a company's capital structure, the more complex the WACC calculation.

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