3-7

Which of the following is usually the lowest? after-tax cost of debt before-tax cost of debt cost of preferred stock cost of common stock marginal cost of capital To determine a firm's WACC, it is necessary to compensate for the effect of: transaction costs associated with doing business in financial markets the tax implications of debt none of the above both a and b In the calculation of the component cost of a firm's debt, the yield-to-maturity on the firm's bonds is equal to the component cost of debt. must be adjusted for expected capital gains or losses on the bonds. must be adjusted for the tax-deductibility of interest expense. b and c Which of the following would increase the WACC? an increase in flotation costs a decrease in tax rates a decrease in preferred dividends Both a & b All of the above The cost of retained earnings differs from the cost of new equity due to: flotation costs dividends capital gains yields Both a & c All of the above