The importance of knowing a firm's cost of capital Blue Oyster is considering investing in a project whose risk is greater than the firm's current risk level based on any method for assessing risk. Which of the following should management do when evaluating this project? O To take the higher risk level into account, they will need to increase the flotation expenses associated with the project. O They should always reject the project, because it will increase the firm's risk level. O To take the higher risk level into account, they will need to use a discount rate that is greater than the cost of capital to evaluate the project. O To take the higher risk level into account, they will need to change the weights on the capital components Which of the following statements is correct? O A firm's after-tax cost of preferred stock may be significantly less than its before-tax cost, because issuing preferred stock dividends creates a tax shelter. O A company needs to adjust the cost of debt for taxes, because interest payments are tax deductible O 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