j&R has a total debt to total assets ratio of 70%. This is considerably above the industry average of 40%. J&R believes in the pecking order theory of capital structure. Therefore, when rasing funds for the new project, J&R should

• use retained earnings prior to issuing any new common stock

• issue bonds and buy assets to reduce their total debt ratio in order to be closer to the optimal level of debt.

• use equity to get closer to the optimal capital structure then issue additional debt if necessary.

• issue equity while maintainng reserve borrowing capacity.

• use short-term debt to its maximum available limit prior to issuing long-term debt.

Your company is evaluating a new project and uses the WACC as the discount rate. This is acceptable when the

• company is well diversified and the unsystematic risk is negligible.

• company is well established and financially stable.

• risk of the project is equal to the companys overall level of risk.

• WACC produces a positive NPV.

• project has only systematic risk.

You are a consultant for a company that wants to reduce its beta. Which of the following recommendations would you make to the company?

• reduce fixed costs relative to variable costs.

• increase its sales/assets ratio.

• decrease its operating leverage while increasing its financial leverage.

• increase its debt-to-equity ratio.

• increase fixed costs relative to variable costs.