The difference between the weighted - average cost of capital (WACC) and the pre

Question

The difference between the weighted - average cost of capital (WACC) and the pre-tax (unlevered) WACC is the weighted - average cost of capital is based on the after - tax cost of equity and the pre - tax WACC is based on the after - tax cost of debt. the weighted - average cost of capital multiplies the component costs of equity and debt by their weight in the capital structure, and the pre - tax WACC does not. the weighted - average cost of capital multiplies the cost of equity and the cost of debt by (1 - tax rate) and the pre - tax WACC does not. the weighted - average cost of capital multiplies the cost of debt by (1 - tax rate) and the pre - tax WACC does not.

Explanation / Answer

D the weighted average cost of caoital multiplies the cost of debt by (1- tax rate ) and the pre tax WACC does not.

Since cost of debt = Intt rate (1- Tax rate) and it is considered in computation of WACC.

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