Question

Which of the following statements is CORRECT?

A. The WACC that should be used in capital budgeting is the firm's marginal, after-tax cost of capital.
B. The WACC is calculated using before-tax costs for all components.
C. For a given firm, the after-tax cost of debt is always more expensive than the after-tax cost of non-convertible preferred stock.
D. Retained earnings that were generated in the past and are reported on the firm's balance sheet are available to finance the firm's capital budget during the coming year.
E. The after-tax cost of debt usually exceeds the after-tax cost of equity.

Answer 1

Option A

Step-by-step explanation:

Firms treat Weighted average cost of capital(WACC) as the discount rate to calculate the net present value of a business and to evaluate investments that are most essential for capital budgeting.