The relationship between WACC and investors' required rates of return The required rate of return of an investor is the rate of return that an investor demands to purchase a firm's stocks or bonds and thereby provide funds for capital investment. Therefore, required returns from the investor's point of view correspond to the required returns or the weighted average cost of capital (WACC) from the firm's point of view Read the statements in the following list and determine whether each is true or false. Statement 1: The amount that an investor is willing to pay for a share of common stock is inversely related to the firm's cost of common equity. Statement 2: The before-tax cost of a firm's debt is equal to its after-tax cost. Statement 3: Break points in the firm's investment opportunity schedule occur when the firm's WACC increases due to an increase in the cost of a component source of capital. Statement 4: The cost of retained earnings is the same as the cost of existing outstanding common stock. The true statements are: Statements 1 and 3 Statements 1, 2, 3, and 4 Statements 1, 2, and 4 Statements 1, 3, and 4