h 09: Assignment - The Cost of Capital Based on your understanding of the concept of cost of capital, which of the following statements are valid? Check all that apply. The weighted average cost of capital (WACC) is considered the overall rate expected to generate required returns for investors, but companies do not use it while discounting project cash flows. The required rate of return for long-term debt capital funding is incorporated separately in project analysis, because it is not included in the weighted average cost of capital (WACC). Companies have free cash flow that is available for distribution, and investors expect to earn a certain required rate of return if it is invested. The company's weighted average cost of capital (WACC) incorporates the required rates of return that investors expect as a compensation for the risk. Warm Duck Brewing Company 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: Less risky over time, and its value will increase Riskier over time, and its value will increase Riskier over time, and its value will decrease Less risky over time, and its value will decrease Which of the following statements is correct? 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. The cost of raising funds from retained earnings is usually a lot cheaper than the cost of debt financing, because the firm already possesses the funds in retained earnings. If a firm wants to lower its cost of debt, it can simply issue debt with a lower coupon rate