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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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