2. The weighted average cost of capital

2. The weighted average cost of capital Aa Aa E The importance of knowing a firm's cost of capital Purple Lemon is considering investing in a project whose risk is greater than the firm's current risk level based on any method for assessing risk. Which of the following should management do when evaluating this project? To take the higher risk level into account, they will need to increase the flotation expenses associated with the project. They should always reject the project, because it will increase the firm's risk level. To take the higher risk level into account, they will need to use a discount rate that is greater than the cost of capital to evaluate the project. To take the higher risk level into account, they will need to change the weights on the capital components. O Which of the following statements is correct? O A company needs to adjust the cost of debt for taxes, because interest payments are tax deductible. The cost of raising funds from retained earnings is usually a lot cheaper than the cost of debt financing, because the firm already possesses the funds in retained earnings. If a firm wants to lower its cost of debt, it can simply issue debt with a lower coupon rate