Chapter 10 - Chapter 10 1. Which of the following...

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Chapter 10 1 . Which of the following statements is CORRECT? a. A change in a company’s target capital structure cannot affect its WACC. b. WACC calculations should be based on the before-tax costs of all the individual capital components. c. Flotation costs associated with issuing new common stock normally reduce the WACC. d. If a company’s tax rate increases, then, all else equal, its weighted average cost of capital will decline . e. An increase in the risk-free rate will normally lower the marginal costs of both debt and equity financing. d Statement d is true, because the cost of debt for WACC purposes = r d (1 − T), so if T increases, then r d (1 − T) declines. 2 . For a company whose target capital structure calls for 50% debt and 50% common equity, which of the following statements is CORRECT? a. The interest rate used to calculate the WACC is the average after-tax cost of all the company's outstanding debt as shown on its balance sheet. b.
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Chapter 10 - Chapter 10 1. Which of the following...

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