1. (True/False): A firm's cost of capital will generally increase if the firm lowers its debt-equity ratio.

2. (True/False): The cost of equity will generally increase for risky firms when the risk-free rate of return increases.

3. To calculate the present value of a business, the firm's free cash flows should be discounted at the firm's:

A. weighted-average cost of capital.

B. pre-tax cost of debt.

C. aftertax cost of debt.

D. cost of equity.

4. An increase in which one of the following is most apt to decrease the WACC of a firm that has both debt and equity in its capital structure?

A. Firm's beta

B. Market rate of return

C. Tax rate

D. Yield on preferred stock