Based on M&M Proposition 2 with taxes, the weighted average cost of capital:

A. is equal to the aftertax cost of debt.

B. has a linear relationship with the cost of equity capital.

C. is unaffected by the tax rate.

D. decreases as the debt-equity ratio increases.

Question

Arthur Ramos

Business

22 July, 17:51

Based on M&M Proposition 2 with taxes, the weighted average cost of capital:

A. is equal to the aftertax cost of debt.

B. has a linear relationship with the cost of equity capital.

C. is unaffected by the tax rate.

D. decreases as the debt-equity ratio increases.

+1

Answers (1)

Know the Answer?

Jimena Carson · Answer 1

The correct answer is D

Explanation:

The M and M proposition 2 states the cost of equity of the company. The rate of return required or needed which is grounded or based on the risk level linked or associated with the investment the historical volatility.

The M and M proposition 2 states with the taxes, the weighted average cost of capital decreased or reduced as the ratio of debt to equity increases.

Based on M&M Proposition 2 with taxes, the weighted average cost of capital:A. is equal to the aftertax cost of debt.B. has a linear relationship with the cost of equity capital.C. is unaffected by the tax rate.D. decreases as the debt-equity ratio increases.

Based on M&M Proposition 2 with taxes, the weighted average cost of capital:

A. is equal to the aftertax cost of debt.

B. has a linear relationship with the cost of equity capital.

C. is unaffected by the tax rate.

D. decreases as the debt-equity ratio increases.