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Each of the following factors affects the weighted average cost of capital (WACC) equation. Which are factors that the firm cannot control? Check all that
Each of the following factors affects the weighted average cost of capital (WACC) equation. Which are factors that the firm cannot control? Check all that apply. The general level of stock prices The effect of the tax rate on the cost of debt in the WACC equation The firm's dividend payout ratio The impact of cost of capital on managerial decisions Consider the following case: 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 L is considering a project with an expected return of 9.5%. Should Hints Co. accept or reject the project? Reject Accept On what grounds do you base your accept-reject decision? Division L's project should be accepted, because its return is above 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
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