Which of the following statement is correct?

1. An increase in tax rates will increase the cost of debt for a firm.

2. The aftertax cost of debt for the company is the weighted average of the beforetax cost of equity for all outstanding equity issues.

3. All the answers are correct.

4. Corporations are obliged by law to return all retained earnings in the form of common stock dividends to its investors.

5. All suppliers of capital expect a rate of return proportionate to the risk they take.