What impact will each of the following events have on a firm weighted average cost of capital? The corporate tax rate is lowered The firm increases its leverage The firm's stock price falls...

1 answer below »

What impact will each of the following events have on a firm weighted average cost of capital?




  1. The corporate tax rate is lowered




  2. The firm increases its leverage




  3. The firm's stock price falls dramatically




  4. New York City imposes a stamp tax on share issues floated there.




  5. The government allows private investors to exclude up to $1,000 in dividends from taxable income.




  6. The firm sells a division and replaces it with a less risky project.





Answered Same DayDec 25, 2021

Answer To: What impact will each of the following events have on a firm weighted average cost of capital? The...

Robert answered on Dec 25 2021
116 Votes
1) The lowering of the corporate tax rate would lead to lowering of the tax shield offered by
interest paid on debt. Hence, the post-tax cost of debt would increase leading to an
increase in the weighted average cost of capital.
2) As the firm increases the leverage, the weightage of debt would increase while that of
equity would decrease. Since cost of debt is almost always lower than equity, hence, this
would lead...
SOLUTION.PDF
SOLUTION.PDF

Answer To This Question Is Available To Download

Related Questions & Answers

More Questions »

Submit New Assignment

Copy and Paste Your Assignment Here
Have files?