Using the firm's WACC (weighted average cost of capital) to evaluate a project implies that the project is of average risk to the company, that is, that the project being evaluated has the same risk as that of the firm's average project.

1. True
2. false

All projects should be evaluated against the WACC (weighted average cost of capital), including those projects with dedicated funding.

1. True
2. false

When calculating the cost of a firm's capital components, which of the following must be adjusted for taxes?

debt

common stock

preferred stock

The cost of each capital component must be adjusted for taxes.

None of the costs for any of the capital components need be adjusted for taxes.

The retained earnings break point describes...

the point at which new equity must be issued in order to finance capital projects.

the break-even point of a project (i.e. expenses = returns).

the optimal capital budget amount for the period.

the amount of retained earnings spent on capital projects for the period.

When calculating the cost of capital for a new project, which are the appropriate values to use?

market value

book value

historical value

it depends on the situation