Which of the following statements regarding the weighted average cost of capital (WACC) is correct?

	A.	The cost of preferred stock is adjusted for taxes.
	B.	The WACC used to evaluate capital budgeting projects is a historical, before-tax cost of capital.
	C.	The WACC represents the cost of all the capital that the firm has already raised to acquire its assets.
	D.	Retained earnings are not costless because they have an opportunity cost.
	E.	Target capital structure changes do not affect the WACC; only changes to the component costs themselves do.

Refer to Damon Electronics Company information below, what are the NPV of project X and the NPV of project Y? (Note: Keep your answer. There are two other related questions.)

Use the following information for the three questions referring to Damon Electronics Company:

You are a financial analyst for Damon Electronics Company. The director of capital budgeting has asked you to analyze two proposed capital investments, project X and project Y. Each project has a cost of $10,000, and the cost of capital for each project is 12%. The projects expected net cash flows are as follows:

Project X Project Y

Period Cash flows Cash flows

0 $10,000 $10,000

1 6,500 1,000

2 3,000 1,000

3 3,000 7,000

4 1,000 7,000

	A.	$3,500; $6,000
	B.	$966.01; $1,001.02
	C.	$862.51; $1,001.02
	D.	$966.01; $1,121.14
	E.	$862.51; $1,121.14