Question

The weighted average cost of capital for a company: Group of answer choices should be used as the required return when analyzing a potential acquisition in an unrelated business. is unaffected by changes in corporate tax rates. is equivalent to the after-tax cost of the firm's liabilities. is the return investors require on the total assets of the firm. remains constant when the debt-equity ratio changes.

Answer 1

is the return investors require on the total assets of the firm

Step-by-step explanation:

The weighted average cost of capital (WACC) is the rate of return in which the company predicted to pay for holding the security in order to finance the assets

The formula to compute the WACC is shown below:

= Weightage of debt × cost of debt × ( 1- tax rate) + (Weightage of preferred stock) × (cost of preferred stock) + (Weightage of common stock) × (cost of common stock)

Hence, fourth option is correct