When a firm has flotation costs equal to $7$ percent of the funding need, project analysts should:

increase the initial project cost by dividing that cost by $(1-0\mathrm{.}07).$

increase the project's discount rate to offset these expenses by multiplying the firm's WACC by $1\mathrm{.}07.$

increase the project's discount rate to offset these expenses by dividing the firm's WACC by $(1-0\mathrm{.}07).$

increase the initial project cost by multiplying that cost by $1\mathrm{.}07.$