Series 79 practice questioneasyAdvanced Financial Analysis
Which component of WACC is adjusted for the company's marginal tax rate?
- ACost of preferred stock
- BCost of debt✓ Correct answer
- CCost of equity
- DMarket risk premium
Explanation
Why B — Cost of debt
The after-tax cost of debt is used in WACC, so debt payments benefit from tax deductibility. Forgetting tax adjustment understates the value of debt in capital structure analysis.
Turn it into reps
Reading one answer is not the same as being ready
Lucky the Banker is a free practice app with 995+ Series 79 questions, weak-area tracking, and timed mock exams. No credit card, no paywall.
Spot an error in this question or explanation? Tell us — we fix these fast.
Related Collection, Analysis & Evaluation of Data questions
- If an acquirer expects $40 million in annual synergies from a deal, what happens to accretion/dilution analysis if…
- Which of the following is generally true when interpreting the mean and median multiples from a set of peer companies?
- When building a DCF, what is the impact of assuming a higher terminal EBITDA multiple in the exit multiple method?
- When analyzing precedent transactions, why might a deal that was paid entirely in stock command a lower observed…
- A company adds debt while EBITDA remains constant. Which credit metric is directly certain to increase?
- If a company capitalizes a larger portion of operating expenses instead of expensing them, all else equal, which…
- In a precedent transaction analysis, how can selection bias affect the observed valuation multiples?
- If a company reports significant deferred revenue, what does this indicate about its cash flow?
