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.

The general level of stock prices

The effect of the tax rate on the cost of debt in the weighted average cost of capital equation

The firm$$s capital budgeting decision rules

The impact of a firm$$s cost of capital on managerial decisions

Consider the following case:

Anderson Animations Corporation $($AAC$)$ has two divisions, L and H$.$ Division L is the company$$s low$-$risk division and would have a weighted average cost of capital of $8\%$ if it was operated as an independent company. Division H is the company$$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 L is considering a project with an expected return of $9\mathrm{.}5\%.$

Should Anderson Animations Corporation $($AAC$)$ accept or reject the project?

Reject the project

Accept the project

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

Division L$$s project should be accepted, since its return is greater than the risk$-$based cost of capital for the division.

Division L$$s project should be accepted, because its return is less than the risk$-$based cost of capital for the division.