Which of the following would tend to reduce the weighted average cost of capital
ID: 2651988 • Letter: W
Question
Which of the following would tend to reduce the weighted average cost of capital for a firm?
The expected return on the market portfolio decreases but the risk-free rate stays the same
The flotation costs associated with issuing new common stock increase
The company’s beta increases
The firm’s corporate tax rate decreases but does not change the firm’s beta
The firm, with a required return on equity greater than its borrowing rate, retires some debt with money raised through issuing more equity
The expected return on the market portfolio decreases but the risk-free rate stays the same
The flotation costs associated with issuing new common stock increase
The company’s beta increases
The firm’s corporate tax rate decreases but does not change the firm’s beta
The firm, with a required return on equity greater than its borrowing rate, retires some debt with money raised through issuing more equity
Explanation / Answer
The expected return on the market portfolio decreases but the risk-free rate stays the same.