Earn on its existing assets to maintain the value of stock

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Reference no: EM132041102

1. A company has a capital structure (market values) which is 60% debt and 40% equity. Its cost of equity is 15%, and its pretax cost of debt is 8%. Its tax rate is 30%. What is the company's WACC?

7.44%

9.36%

12.48%

15.01%

2. The WACC is the overall return the firm must earn on its existing assets to maintain the value of its stock.

True / False

3. From what we know about the Modigliani-Miller propositions, if we decrease the corporate tax rate, then firms should use more debt relative to equity financing.

True / False

4. The WACC is the required return on the firm's overall assets.

True / False

Reference no: EM132041102

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