1. Which of the following condition(s) must hold before a firm can use its existing WACC to discount the cash flows of a new investment?

1. The new asset must be financed entirely with equity
2. The new asset must be similar to the firms existing assets
3. The firms debt ratio must remain unchanged after the investment

1. I only
2. II only
3. I and III
4. II and III
5. I and II