The reason why the cost of debt is multiplied by (1 − T C ) while calculating the weighted average cost of capital (WACC). Introduction: The cost of capital refers to the return that the investors expect on a particular investment. In other words, it refers to the compensation demanded by the investors for using their capital. The weighted average cost of capital (WACC) refers to the weighted average of the cost of debt after taxes and the cost of equity .

Question

Want to see the full answer?

Answer 1

Question

Chapter 14.4, Problem 14.4BCQ

Summary Introduction

To discuss: The reason why the cost of debt is multiplied by (1 − T_C) while calculating the weighted average cost of capital (WACC).

Introduction:

The cost of capital refers to the return that the investors expect on a particular investment. In other words, it refers to the compensation demanded by the investors for using their capital.

The weighted average cost of capital (WACC) refers to the weighted average of the cost of debt after taxes and the cost of equity.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

Which one is measurable debt burden?Select one:a. Varaiancesb. Debt per capitac. None of the other pointsd. Statistically

Is the relevant cost of debt, when calculating the WACC, theinterest rate on already outstanding debt or the rate on newdebt? Why?

Thinking about the definition of the term "flotation costs," should we expect the flotation costs for debt to be significantly lower than those for equity? Why or why not? how can the answer be supported.

Answer 2

Question

Chapter 14.4, Problem 14.4BCQ

Summary Introduction

To discuss: The reason why the cost of debt is multiplied by (1 − T_C) while calculating the weighted average cost of capital (WACC).

Introduction:

The cost of capital refers to the return that the investors expect on a particular investment. In other words, it refers to the compensation demanded by the investors for using their capital.

The weighted average cost of capital (WACC) refers to the weighted average of the cost of debt after taxes and the cost of equity.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 3

Question

Chapter 14.4, Problem 14.4BCQ

Summary Introduction

To discuss: The reason why the cost of debt is multiplied by (1 − T_C) while calculating the weighted average cost of capital (WACC).

Introduction:

The cost of capital refers to the return that the investors expect on a particular investment. In other words, it refers to the compensation demanded by the investors for using their capital.

The weighted average cost of capital (WACC) refers to the weighted average of the cost of debt after taxes and the cost of equity.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 4

Question

Chapter 14.4, Problem 14.4BCQ

Summary Introduction

To discuss: The reason why the cost of debt is multiplied by (1 − T_C) while calculating the weighted average cost of capital (WACC).

Introduction:

The cost of capital refers to the return that the investors expect on a particular investment. In other words, it refers to the compensation demanded by the investors for using their capital.

The weighted average cost of capital (WACC) refers to the weighted average of the cost of debt after taxes and the cost of equity.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 5

Chapter 14.4, Problem 14.4BCQ

Summary Introduction

To discuss: The reason why the cost of debt is multiplied by (1 − T_C) while calculating the weighted average cost of capital (WACC).

Introduction:

The cost of capital refers to the return that the investors expect on a particular investment. In other words, it refers to the compensation demanded by the investors for using their capital.

The weighted average cost of capital (WACC) refers to the weighted average of the cost of debt after taxes and the cost of equity.

Answer 6

Chapter 14.4, Problem 14.4BCQ

Summary Introduction

To discuss: The reason why the cost of debt is multiplied by (1 − T_C) while calculating the weighted average cost of capital (WACC).

Introduction:

The cost of capital refers to the return that the investors expect on a particular investment. In other words, it refers to the compensation demanded by the investors for using their capital.

The weighted average cost of capital (WACC) refers to the weighted average of the cost of debt after taxes and the cost of equity.

Answer 7

Chapter 14.4, Problem 14.4BCQ

Summary Introduction

To discuss: The reason why the cost of debt is multiplied by (1 − T_C) while calculating the weighted average cost of capital (WACC).

Introduction:

The cost of capital refers to the return that the investors expect on a particular investment. In other words, it refers to the compensation demanded by the investors for using their capital.

The weighted average cost of capital (WACC) refers to the weighted average of the cost of debt after taxes and the cost of equity.

Answer 8

Expert Solution & Answer

Answer 9

Expert Solution & Answer

Answer 10

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 11

Ch. 14.1 - What is the primary determinant of the cost of...Ch. 14.1 - What is the relationship between the required...Ch. 14.2 - What do we mean when we say that a corporations...Ch. 14.2 - Prob. 14.2BCQ Ch. 14.3 - Why is the coupon rate a bad estimate of a firms...Ch. 14.3 - How can the cost of debt be calculated?Ch. 14.3 - How can the cost of preferred stock be calculated?Ch. 14.4 - Prob. 14.4ACQ Ch. 14.4 - Prob. 14.4BCQ Ch. 14.4 - Under what conditions is it correct to use the...

Solution Summary: The author explains the reason why the cost of debt is multiplied by (1 T C) to determine the after-tax cost.

Want to see the full answer?

Chapter 14 Solutions