Question
Which of the following statements is true of the impact of tax on the cost of capital of a firm? A. All else being equal,
Which of the following statements is true of the impact of tax on the cost of capital of a firm?
A. All else being equal, an increase in the equity capital that a firm raises by retaining earnings results in in the increase in the tax rate applicable to the firm.
B. All else being equal, an increase in the corporate tax rate results in a decrease in the weighted average cost of capital.
C. The tax paid on dividends of preferred stock reduces the amount of funds that the firm can use for financing capital budgeting projects.
D. The before-tax cost of debt is always less than the after-tax cost of debt of a firm.
E. The before-tax cost of debt is the cheapest component of the cost of capital since the tax paid is a deductible expense.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started