1.) Which of the following statements about flotation costs is incorrect:

a. Flotation costs for debt is typically lower than flotation costs for equity.

b. As a company issues more equity the flotation costs, as a percentage of the capital raised, decreases.

c. Due to flotation costs on equity the WACC₂ is higher than WACC₁.

d. All capital components, i.e. debt, preferred stock, retained earnings, and equity, have flotation costs.

2) What does the Break Point represent?

a. The point where a firm moves from WACC₁ to WACC₂.

b. The maximum amount of capital that a firm can raise before they run out of retained earnings.

c. The total amount of capital that needs to be invested in a new project.

d. Both A and B are correct.