1. Which one of the following is minimized at the optimal capital structure?

Cost of preferred stock.

After-tax cost of debt.

Weighted average cost of capital.

Cost of new common stock.

Which of the following statements is most correct?

The NPV method assumes that cash flows will be reinvested at the WACC, while the IRR method assumes reinvestment at the IRR.

Both the NPV and IRR methods assume that cash flows will be reinvested at the IRR.

The NPV method assumes that cash flows will be reinvested at the IRR, while the IRR method assumes reinvestment at the WACC.

Both the NPV and IRR methods assume that cash flows will be reinvested at the WACC.

What is the IRR of a project with the following cash flows? The WACC is 10%.

Year	0	1	2	3
Cash Flow	-$100	30	-40	90

-6.5%

10%

-7.7%

Cannot be determined without knowing the payback.

Suppose a company is expanding into a new business activity which is much less risky than the companys current business activities. Other things being equal, what is the most probably effect on the companys WACC?

WACC will increase.

No effect on WACC.

WACC will decrease.