- CFA Exams
- CFA Level I Exam
- Topic 3. Corporate Issuers
- Learning Module 6. Capital Structure
- Subject 1. The Cost of Capital
CFA Practice Question
If all other factors are equal, a higher corporate tax rate will ______
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.
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 |