2. The weighted average cost of capital The importance of knowing a firm's cost of capital Red Lemon Shipbuilders Inc. has two divisions: one is very risky, and the other exhibits significantly less risk. The company uses its investors' overall required rate of return to evaluate its investment projects. It is most likely that the firm will become: Riskier over time, and its value will decrease Less risky over time, and its value will increase Riskier over time, and its value will increase Less risky over time, and its value will decrease Which of the following statements is correct? If a firm wants to lower its cost of debt, it can simply issue debt with a lower coupon rate. When all other factors are held constant, a higher tax rate will lower a firm's weighted average cost of capital only if the firm uses debt financing. 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