3.Schalheim Sisters Inc. has always paid out all of its earnings as dividends; hence, the firm has no retained earnings. This same situation is expected to persist in the future. The company uses the CAPM to calculate its cost of equity, and its target capital structure consists of common stock, preferred stock, and debt. Which of the following events would REDUCE its WACC? market premium increases the flotation cost associated with issuing the new commons stock decrease the company beta increases expected inflation increases the flotation cost associated with issuing preferred stock increase

1. market premium increases
2. the flotation cost associated with issuing the new commons stock decrease
3. the company beta increases
4. expected inflation increases
5. the flotation cost associated with issuing preferred stock increase