Question: A financial analyst is estimating the effect on the cost of capital for a company of a decrease in the marginal tax rate. The company

A financial analyst is estimating the effect on the cost of capital for a company of a decrease in the marginal tax rate. The company is financed with debt and common equity. A decrease in the firm's marginal tax rate would:

increase the cost of capital because of a higher after

-

tax cost of debt and equity.

increase the cost of capital because of a higher after

-

tax cost of debt.

decrease the cost of capital because of a lower after

-

tax cost of debt and equity.

decrease the cost of capital because of a higher after

-

tax cost of debt

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