Question

Cost of capital for each source will be determined on a/an ______________.

• A. Before-tax basis
• B. After-tax basis
• C. After-indirect tax basis
• D. None of these

Answer 1

Answer: (B)

After-tax basis

WACC is the average after-tax cost of a company’s various capital sources, including common stock, preferred stock, bond, and any other long term debt. In other words, WACC is the average rate a company expects to pay to finance its assets.