Ch 10: Assignment - The Cost of Capital ttention: Due to a bug in Google Chrome, this page may not function correctly. Click here to learn more 2. The weighted average cost of capital Aa Aa The importance of knowing a firm's cost of capital Happy Lion Manufacturing 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 O Riskier over time, and its value will increase O Less risky over time, and its value will increase O Less risky over time, and its value will decrease Which of the following statements is correct? O If a firm wants to lower its cost of debt, it can simply issue debt with a lower coupon rate O 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 O The market value of a firm's debt and equity will continuously change throughout the day, but the book value of debt and equity tends to stay more stable over time. Consequently, the firm should use the book-value weight to define its optimal capital structure