1. The Burn Inc. is evaluating building a new widget factory and financing the project entirely with retained earnings. The minimum rate of return the firm requires on this investment is called the project's:

Required internal rate of return.

Cost of capital.

Market rate of return.

Expected return.

Cost of equity.

2. All Hype Inc. uses its WACC as the discount rate when evaluating new projects. This means that the company will tend to do all of the following except:

Favor high risk projects over low risk projects.

Increase the firms overall level of risk over time.

Lower the average risk level of the firm over time.

Reject some positive net present value projects.

Accept some negative net present value projects.

3. Bob's Burgers is considering renovating their restaurants and adding salad bars. The company believes that it will need to finance the project externally. Incorporating flotation costs into the analysis of the project will:

Have no effect on the present value of the project.

Increase the project's rate of return.

Increase the initial cash outflow of the project.

Cause the project to be improperly evaluated.

Increase the net present value of the project.