The importance of knowing a firm's cost of capital Purple Lemon Fruit 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: O Less risky over time, and its value will decrease O Riskier over time, and its value will increase O Riskier over time, and its value will decrease O Less risky over time, and its value will increase 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. A firm's weighted average cost of capitalshould decrease if its tax rate increases, but the yield to maturity of its noncallable bonds remains the same and all other factors are held constant. O The market value of a firm's debt and equity will continuously change throughout the day, but the book value of debt and equity tends to stay more stable over time. Consequently, the firm should use the book-value weight to define its optimal capital structure