question archive Ceteris paribus (l
Ceteris paribus (l
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Ceteris paribus (l.e., all the rest unchanged), which of the following statements is correct about the Equity Value (E) of a company? (Sanjib: 2) O Equity value is not affected by the cost of debt (kd) because the discount rate is Ke (i.e., the cost of shareholders' capital). Equity value is affected by the cost of debt (kd) because the discount rate is the WACC. Equity value is affected by the cost of debt (kd) because it affects the calculation of FCFF. None of the other answers 11 Do you want to withdraw from the test? No Yes Michela Arnaboldi
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Answer to Q10
Equity value is not affected by the cost of debt (kd) because the discount rate is ke i.e., cost of shareholder capital.
Reason:
While calculating cost of equity, we will consider cost of risk free rate and the expectation of share holders from the organisation.
While calculating cost of debt, we will consider cost of debt after tax.
Therefore, equity value is not affected by cost of debt (kd).
