1. In what way can a firm greatly reduce the problem associated with basing its decisions on inaccurate results

from using firm-wide WACC for all projects?

A. Calculate WACCs using the separation principle.

B. Use proxy betas to calculate WACCs.

C. Calculate WACCs for each division separately.

D. Calculate WACCs firm-wide using the objective approach.

2. The common shares of Jones & Smith, Inc. sell for $22 per share. The firm is expected to set its next annual

dividend at $0.68 per share, and all future dividends are expected to grow by 5 percent per year indefinitely. If

Jones & Smith, Inc., experiences a flotation cost of 15 percent on new equity issues, what will be the flotationadjusted

cost of equity?

A. 5.87 percent

B. 7.92 percent

C. 8.64 percent

D. 6.63 percent