Question

The weighted average cost of capital for a company is least dependent upon the: A) company's...

The weighted average cost of capital for a company is least dependent upon the:

A) company's beta.

B) coupon rate of the company's outstanding bonds.

C) growth rate of the company's dividends.

D) company's marginal tax rate.

E) standard deviation of the company's common stock.

Why is the answer E instead of Coupon Rate B

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Homework Answers

Answer #1

Answer is Option E

WACC is dependent on cost of equity and cost of debt.

Cost of Equity depends on company's beta (CAPM Model), growth rate of dividends (constant growth dividend discount model), so option A and C are not the answer.

Cost of debt depends on coupon rate (for yield) as well as marginal tax rate (for post tax cost of debt) so option B and D are incorrect.

Hence, answer is E. Standard deviation is the least probable factor that may cause change in WACC.

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