7. Factors that affect the cost of capital equation Each of the following factors affects the weighted average cost of capital (WACC) equation. Which of the following factors are outside a firm's control? Check all that apply. Tax rate The inflation rate The firm's capital budgeting decision rules The impact of cost of capital on managerial decisions Consider the following case: International Imports (12) has two divisions, L and H. Division L is the company's low-risk division and would have a weighted average cost of capital of 8% if it was operated as an independent company. Division is the company's high-risk division and would have a weighted average cost of capital of 14% if it was operated as an independent company. Because the two divisions are the same size, the company has a composite weighted average cost of capital of 11%. Division His considering a project with an expected return of 12% Should International Imports (12) accept or reject the project? O Reject the project Accept the project On what grounds do you base your accept-reject decision? O Division H's project should be rejected since its return is less than the risk-based cost of capital for the division. O Division H's project should be accepted, as its return is greater than the risk-based cost of capital for the division