Question

One calculates the weighted average cost of capital (WACC), on an after-tax basis, as

WACC = (rD) (1 − TC ) (D/V) + (rE) (E/V), where V = D + E.

A. True
B. False

Answer 1

The weighted average cost of capital (WACC) is a financial metric used to determine the average rate of return a company needs to earn on its investments in order to satisfy its investors.

Step-by-step explanation:

The subject of this question is Business. The weighted average cost of capital (WACC) is a financial metric used to determine the average rate of return a company needs to earn on its investments in order to satisfy its investors. It takes into account the company's cost of debt and cost of equity, weighted by the proportion of each in the company's capital structure.

The formula to calculate WACC on an after-tax basis is: WACC = (rD) (1 − TC ) (D/V) + (rE) (E/V), where V = D + E. This formula considers the cost of debt (rD) multiplied by the after-tax weight of debt (1 - TC) and the proportion of debt in the company's capital structure (D/V), plus the cost of equity (rE) multiplied by the proportion of equity in the capital structure (E/V).