While calculating WACC, we should use Marginal tax Rate or Average Tax Rate?
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The marginal tax rate is the amount of additional tax paid for additional income earned.
The average tax rate is the total tax paid divided by total income earned.
practically, we should use marginal tax rate because WACC is the cost of incremental funds which entity is going to raise thus tax rate should also be incremental i.e. marginal tax rate instead effective tax rate