CFA Practice Question

There are 233 practice questions for this study session.

CFA Practice Question

If all other factors are equal, a higher corporate tax rate will ______

A. increase the WACC of a firm with debt and equity in its capital structure.
B. decrease the WACC of a firm with debt in its capital structure.
C. not affect the WACC of a firm with debt in its capital structure.
D. decrease the WACC of a firm with only equity in its capital structure.
E. change the WACC of a firm with debt in its capital structure, but the direction of the change cannot be determined without more information.
Correct Answer: B

User Contributed Comments 4

User Comment
Will1868 Interest is tax deductible giving firm's an incentive to borrow as tax rates rise, all else being equal
olagbami first of all, int on debt is tax deductible whcih results into tax allowance with respect to the int on debt. If there is a rise in corporate tax, this will raise the tax allowance which hitherto brings the cost of debt down.
jagp higher tax shield
pigletin its a math problem.?1-t?becomes smalle
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