Principle of Finance

Which of the following statements regarding the weighted average cost of capital (WACC) is correct? A change in a company's target capital structure cannot affect its WACC. WACC calculations should be based on the before-tax costs of all individual capital components. Flotation costs associated with issuing new common stock normally reduce the WACC. If a company's tax rate increases, then all else equal, its WACC will decline. Which of the following statements is true regarding the tax treatment of payments to securities holders? Interest and preferred stock dividends are not tax-deductible, while common stock dividends are tax deductible. Interest and preferred stock dividends are tax-deductible, while common stock dividends are not tax-deductible. Common stock dividends and preferred stock dividends are tax-deductible, while interest is not tax-deductible. Common stock dividends and preferred stock dividends are not tax-deductible, while interest is tax-deductible. Given the same expected return, the the standard deviation, the tighter the probability distribution and accordingly, the the risk. smaller; higher smaller; lower larger; higher larger: lower