10. The relationship between WACC and investors' required rates of returrn Aa Aa The required rate of return of an investor is the rate of return that an investor demands to purchase a firm's stocks or bonds and thus provide funds for capital investment. Therefore, required returns from the investors' point of view correspond to the required returns or the weighted average cost of capital (WACC) from the firm's point of view. Indicate in the following table whether each of the statem ents about WACC and the required rates of return of investors is true or false. Statement True False A firm's cost of capital is determined by the investors who purchase the firm's stocks and bonds. The amount that an investor is willing to pay for a firm's preferred stock is inversely related to the firm's cost of preferred stock before flotation costs. The firm's cost of debt is what an investor is willing to pay for the firm's bonds before considering the cost of issuing the debt. A firm will increase in value if it invests in projects based on a WACC that is lower than the investors' required rate of return