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For a typical firm with a given capital structure of debt and common equity, which of the following is correct? Note: There is only one
For a typical firm with a given capital structure of debt and common equity, which of the following is correct? Note: There is only one correct answer. | ||||||||||
a. rd (1-t) > WACC > rs. | ||||||||||
b. rs > rd (1-t) > WACC. | ||||||||||
c. WACC > rs > rd (1-t) | ||||||||||
d. rd (1-t) < WACC < rs. | ||||||||||
e. rd (1-t) > rs > WACC. | ||||||||||
where, | rd (1-t) is the after-tax cost of long-term debt | |||||||||
rs is the return on equity | ||||||||||
WACC.is the Weighted-Average Cost of Capital | ||||||||||
ANS: |
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