Use the following to answer the next three questions: Wacky, Inc. is considering a new project that has an IRR of 12%. The firm cannot accept the project currently because its WACC is 13% for projects of this type. The project has the same riskiness as the firm so the WACC for the firm and the project are the same.The financial manager of the firm has proposed the following steps: 1. Increase the firm's expected future growth rate in dividends from the current 2.5% to 3.5%; 2. Releverage the company so that instead of having a capital structure that is 30% debt and70% equity (market values) the capital structure becomes 60% debt and 40% equity. This would be effected by, at least in part, issuing new debt and buying back stock.

8. How would the changes Wacky is considering affect the IRR of the project under consideration?

A) It would increase the IRR

B) It would decrease the IRR

C) It would not change the IRR9.

9.How would the change in dividend policy Wackyis considering likely impact upon this capital budgeting decision (ignoring for now the change in capital structure)?

A) It would increase the likelihood of accepting the project

B) It would decrease the likelihood of accepting the project

C) It would not change likelihood of accepting the project

10. How would the change in capital structure likely impact upon this capital budgeting decision (ignoring for now the change in dividend policy)? Assume that even after the change the firm will have less debt than what its optimal capital structure would allow.

A) It would increase the likelihood of accepting the project

B) It would decrease the likelihood of accepting the project

C) It would not change likelihood of accepting the project