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.

Tax rates

Changing its dividend payout ratio

Altering its investment policy

Interest rates in the economy

The impact of cost of capital on managerial decisions

Consider the following case:

McFann Co$.$ has two divisions, $L$ and $H.$ Division $L$ is the company's low$-$risk division and would have a WACC of $8\%$ if it were operated as

an independent company. Division H is the company's high$-$risk division and would have a WACC of $14\%$ if it were operated as an

independent company. Because the two divisions are the same size, the company has a composite WACC of $11\%.$ Division H is

considering a project with an expected return of $12\%.$

Should McFann Co$.$ accept or reject the project?

Reject

Accept

On what grounds do you base your accept$-$reject decision?

Division H$\text{'}$s project should be accepted, because its return is greater than the risk$-$based cost of capital for the division.

Division H$\text{'}$s project should be rejected, because its return is less than the risk$-$based cost of capital for the division.