Why?

4. Consider two firms, A and B. Assume that the corporate tax rate is strictly positive (but not necessarily equal) and that the CAPM holds. Moreover, assume that the fundamental business risk (i.e. the asset beta) is higher for firm B than for firm A. Also, firm B has a higher leverage (D/D+E) and a higher cost of debt, rp, than firm A. Which of the following statements is true? A) Firm A has a higher after-tax WACC than firm B. B) Firm A has a lower after-tax WACC than firm B. The above information does not allow an unambiguous conclusion. Firm A may have a higher or lower after-tax WACC than firm B. D) None of the above