How would each of the factors in the following table affect a firm's cost of debt, r_d (1-T); its cost of equity, r_s; and its weighted average cost of capital, WACC? Indicate a (+), a minus (-), or a zero (0) if the factor would increase, reduce, or have an indeterminate effect on the item in question. Assume that all other factors are held constant. Justify your answer, but recognize that several of the parts probably have no single correct answer. These questions are designed to stimulate thought and discussion.

Effect on:

-----------------------------------------------r_d(1 - T)----r_s-----WACC

a. The corporate tax rate is lowered ______ ______ ______

b. The federal reserve tightens credit ______ ______ ______

c. The firm uses more debt ______ ______ ______

d. The firm doubles the amount of ______ ______ ______

capital it raises during the year

e. The firm expands into a risky new area ______ ______ ______

f. Investors become more risk averse ______ ______ ______