please answer completely and correctly all questions thanks iz probGuid-ONAPC0A8
ID: 2779963 • Letter: P
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please answer completely and correctly all questions thanks
iz probGuid-ONAPC0A801010000003a 92660000008c cte mayest-0006kckom 1509673973729 0AAADS C QSearch evie Material Determining the Cost of Capital Graded Assignment | Read Chapter 1 1 1 Ba Due Thursday 11.02.17 at 09:00 PM ment Attempts 1-1 Keep the Highest: 1/2 7. The weighted average cost of capital AaAa The importance of knowing a firm's cost of capital Warm Duck Brewing Company has two divisions: one is very risky, and the other exhibits significantly less risk. The company uses its investors' overall required rate of return to evaluate its investment projects. It is most lik the firm will become: investrnent projects. it is most ikely that O Less risky over time, and its value will decrease O Less risky over time, and its value will increase O Riskier over time, and its value will decrease O Riskier over time, and its value will increase Which of the following statements is correct? of raising funds from retained earnings is usually a lot cheaper than the cost of debs financing. because the firm already possesses the funds in retained earnings. O A firm's weighted average cost of capitalshould decrease if its tax rate Increases, but the yield to maturity O Itf a frm wants to lower its cost of debt:,it can simply issue debt with a lower coupon ate, its noncallable bonds remains the same and all other factors are held constant.Explanation / Answer
Ans: 1) A firm using same discount rate for all projects will actually increase the risk and decrease in value over a period of time. Hence, option 3- Riskier over time and its value will decrease is the right option.
2) Option 1 is incorrect as cost of equity = cost of retained earnings and cost of equity is always higher than the cost of debt.
Option 2 is incorrect as after tax yield of maturity will be applicable for noncallable bonds
Option 3 is correct as to give less interest/coupon on the bonds will actually decrease the cost on debt.
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