A firm's weighted average cost of capital:?

Answer is D

WACC=E/V*RETURN ON EQUITY+D/V*COST OF DEBT(1-TAX RATE)

A, wrong, when tax rate decrease, 1-tax rate increase, hence, wacc increases

B, wrong, return on equity is a part of wacc

C, wrong, the correlation is positive

D, correct, equity has its required return, called return on equity, debt has its required return, called cost of debt, WACC is the combined rate overall rate for both (existing assests)

E, sounds about right, but in the presence of D, i would not pick E if this is a single answer question.

b) cost of equity and its aftertax cost of debt. including tax, WACC = (cost of equity x % return of equity) + (cost of debt x % return of debt) x ( % return before tax x (1 - marginal tax rate)), in which % return of equity + % return of debt = 100%

c