Calculate the WACC change

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1. Which of the following statements about the cost of capital is INCORRECT?

The amount of debt affects firm's weighted average cost of capital.

Weighted average cost of capital calculations should be based on the after-tax-costs of all the individual capital components.

If a company's tax rate increases, then, all else equal, its weighted average cost of capital will increase.

Flotation costs can increase the cost of preferred stock.

2. Lowells Inc plans to issue a $1,000 par value, 20-year noncallable bond at a yield of 5%. The company's marginal tax rate is 30.00%, but Congress is considering a change in the corporate tax rate to 20.00%. By how much would the component cost of debt used to calculate the WACC change if the new tax rate was adopted?

0.5%

-0.5%

0.6%

-0.6%

Reference no: EM133305497

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