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Asked by Brandon Pimentel on May 10, 2024

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For a typical firm,which sequence is correct? All rates are after taxes,and assume the firm operates at its target capital structure.

A) re > rs > WACC > rd
B) rs > re > rd > WACC
C) WACC > re > rs > rd
D) rd > re > rs > WACC

Capital Structure

Refers to the mix of debt and equity financing a company uses to fund its operations and growth.

WACC

The Weighted Average Cost of Capital, a calculation of a firm's cost of capital that weighs each category of capital proportionately.

After Taxes

The net amount remaining following the deduction of all applicable taxes, often used to assess the true profitability of a business activity or investment after federal, state, and other taxes have been considered.

  • Recognize the sequence of different rates in a firm's capital structure and their relationship to the WACC.
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MN
Megan NadalMay 17, 2024
Final Answer :
A
Explanation :
The correct sequence reflects the cost hierarchy in corporate finance: the cost of equity (rS) is typically higher than the weighted average cost of capital (WACC), which in turn is higher than the cost of debt (rD), due to the tax shield on debt and the higher risk associated with equity.

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