Assume that a company has equal amounts of debt, common stock, and preferred stock. An increase in the corporate tax rate of a firm will cause its weighted average cost of capital (WACC) to: A)fall. B)rise. C)more information is needed.
Recall the WACC equation: WACC = [wd × kd × (1 − t)] + (wps × kps) + (wce × ks) The increase in the corporate tax rate will result in a lower cost of debt, resulting in a lower WACC for the company.
