WhyNotCoffee has always paid out all of its earnings as dividends, hence the fir

Question

WhyNotCoffee has always paid out all of its earnings as dividends, hence the firm has no retained earnings. This same situation is expected to persist in the future. The company uses the CAPM to calculate its cost of equity, its target capital structure consists of common stock, preferred stock, and debt. Which of the following events would INCREASE its WACC? The market risk premium declines. The company a beta declines. WhyNotCoffee decides to grow its main business line. WhyNotCoffee decides to begin work on a new highly risky project None of the above. Starbucks is thinking of opening up a new store. Which of the following is an example of a positive externally for this investment? Some customers will go to the new location instead of the old one. Some new customers who are unfamiliar with Starbucks will start buying Starbucks beans to make coffee at home. The real estate investment team at Starbucks spent a full year scouting out locations to find this one. There is a manager at another shore that really wants to work at the new location because it is closer to his house. None of the above.

Explanation / Answer

Answer a Decides to begin work on new highly risk project.

By doing this the beta will increase and the total CAPM return will also increase which will result in increase in WACC.

Answer b

option 2

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