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    Question

    Which statement is correct regarding Weighted Average

    Cost of Capital (WACC)?
    A It is independent of capital structure. Correct Answer Incorrect Answer
    B Uses after-tax cost of debt, as interest is tax-deductible. Correct Answer Incorrect Answer
    C Ignores retained earnings. Correct Answer Incorrect Answer
    D Based on book values, not market values. Correct Answer Incorrect Answer
    E Remains constant under all leverage levels. Correct Answer Incorrect Answer

    Solution

    WACC computation considers after-tax cost of debt, since interest saves tax. Market values are preferred over book values.

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