Question

Each of the following factors affects the weighted average cost of capital (WACC) equation. Which of the following factors are outside a firm’s control? Check all that apply.
The general level of stock prices

The effect of the tax rate on the cost of debt in the weighted average cost of capital equation

The firm’s capital budgeting decision rules

Answer 1

Answer: The correct answers are "The general level of stock prices" and "The effect of the tax rate on the cost of debt in the weighted average cost of capital equation".

Explanation: The general level of stock prices and the effect of the tax rate on the cost of debt in the weighted average cost of capital equation are outside from firm's control because although companies have knowledge of the market, the general level of stock prices is not controlled by them, but by the market. And the effect of the tax rate is not controlled by companies because the tax rate is set by the state.