A change in the company's capital structure will change the amount of taxes paid but will...
A change in the company's capital structure will change the amount of taxes paid but will not change the WACC.
True or False?
Homework Answers
The statement is False.
A change in firm's capital structure will change the amount of taxes and also changes the WACC. As Debt and equity portion will change.
Weighted Average cost of capital = (We * Ke) + [Wd * Kd * (1 - T)]
We = weight of equity : Ke = Cost of Equity
Wd = Weight of Debt : Kd = COst of Debt
T = tax rate
So, if optimal capital structure changes, i.e We changes Kd also will be changed so, WACC also changes
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A change in the company's capital structure will change the
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