Ch 09: Assignment - The Cost of Capital Each of the following factors affects the weighted average cost of capital (WACC) equation. Which are factors that a firm can control? Check all that apply. The firm's capital structure Interest rates in the economy The general level of stock prices Tax rates The impact of cost of capital on managerial decisions Consider the following case: National Petroleum Refiners Corporation (NPR) has two divisions, Land H. Division 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 His 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 National Petroleum Refiners Corporation (NPR) accept or reject the project? Reject the project Accept the project On what grounds do you base your accept-reject decision? The Impact of cost of capital on managerial decisions Consider the following case: National Petroleum Refiners Corporation (NPR) has two divisions, Land 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 His 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 National Petroleum Refiners Corporation (NPR) accept or reject the project? Reject the project Accept the project On what grounds do you base your accept-reject decision? O Division H's project should be accepted, as its return is greater than the risk-based cost of capital for the division O Division H's project should be rejected since its return is less than the risk-based cost of capital for the division