Check any website status at: Is Web Down?

CFA® Level 1: CFA® Level 1

Which of the following statements is most correct?

Prev Question Next Question

Question

Which of the following statements is most correct?

Answers

A. All of these answers.

B. All else equal, an increase in a company's stock price will increase the marginal cost of issuing new common equity.

C. None of these answers.

D. If a company's tax rate increases but the yield to maturity of its noncallable bonds remains the same, the company's marginal cost of debt capital used to calculate its weighted average cost of capital will fall.

E. All else equal, an increase in a company's stock price will increase the marginal cost of retained earnings.

Explanations

Click on the arrows to vote for the correct answer

A. B. C. D. E.

D

The debt cost used to calculate a firm's WACC is k(d)(1 - T). If k(d) (interest rate on the firm's new debt) remains constant but T increases, then the term (1 - T) decreases and the value of the entire equation, k(d)(1 - T), decreases.

Prev Question Next Question