Which one of the following statements is correct for a firm that uses debt in its capital structure? Assume the cost of debt is lower than the cost of equity.

Group of answer choices

1 The WACC should decrease as the firm's debt-equity ratio increases.

2 When computing the WACC, the weight assigned to the preferred stock is based on the coupon rate multiplied by the par value of the preferred stock.

3 The firm's WACC will decrease as the corporate tax rate decreases.

4 The weight of the common stock used in the computation of the WACC is based on the number of shares outstanding multiplied by the book value per share.