If we assign discount rates to individual projects according to the risk level of each project, it Multiple Choice may cause the company's overall weighted average cost of capital to either increase or decrease over time will prevent the company's overall cost of capital from changing over time will cause the company's overall cost of capital to decrease over time decreases the value of the company over time negates the company's goal of creating the most value for its shareholders When we assign a discount rate to an individual project, we should do so based on Multiple Choice the company's overall weighted average cost of capital the actual sources of funding used for the project an average of the company's overall cost of capital for the past five years the current risk level of the overall firm the risks associated with the use of the funds required by the project Pick the correct statement related to WACC for a company that uses debt in its capital structure. Multiple Choice The WACC would most likely decrease if the firm replaced its preferred stock with debt. The weight assigned to preferred stock decreases as the market value of the preferred stock increases. The WACC will decrease as the corporate tax rate decreases. The weight of equity is based on the number of shares outstanding and the book value per share. The WACC will remain constant unlesS a company retires some of its debt Richmond Tours has a capital structure of 60 percent common stock, 5 percent preferred stock, and 35 percent debt. The firm pays out 30 % of net income as dividend. Its beta is 1.21 and pays taxes at the rate of 21 percent. Based on the above, pick the correct statement from below. Multiple Choice The aftertax cost of debt will be greater than the current yield-to-maturity on the company's outstanding bonds. The company's cost of preferred is most likely less than the company's actual cost of debt. The cost of equity is unaffected by a change in the company's tax rate The cost of equity can only be estimated using the capital asset pricing model The weighted average cost of capital will remain constant as long as the company's capital structure remains constant. The is the average of a company's cost of equity, cost of preferred stock, and aftertax cost of debt that are weighted based on the company's capital structure Multiple Choice reward-to-risk ratio weighted capital gains rate structured cost of capital subjective cost of capital weighted average cost of capital We calculate the cost of preferred stock in the same way as when we calculate the Multiple Choice pretax cost of debt rate of return on an annuity aftertax cost of debt rate of return on a perpetuity cost of an irregular growth common stock Pick the correct statement related to cost of debt from below. Multiple Choice A company's pretax cost of debt is based on the current yield to maturity of the company's outstanding bonds. A company's pretax cost of debt is equal to the coupon rate on the latest bonds issued by the company. A company's pretax cost of debt is equivalent to the average current yield on all of a company's outstanding bonds. A company's pretax cost of debt is based on the original yield to maturity on the latest bonds issued by a company. A company's pretax cost of debt has to be estimated as it cannot be directly observed in the market