Question

7. Factors that affect the cost of capital equation Each of the following factors affects the weighted average cost of capital (WACC) equation. Which of the following factors are outside a firm's control? Check all that apply. The general level of stock prices The effect of the tax rate on the cost of debt in the weighted average cost of capital equation The firm's dividend payout ratio The impact of a firm's cost of capital on managerial decisions Consider the following case: International Imports (12) has two divisions, Land H. Division L is the company's low-risk division and would have a weighted average cost of capital of 8% if was operated as an independent company. Division His the company's high-risk division and would have a weighted average cost of capital of 14% if it was operated as an independent company. Because the two divisions are the same size, the company has a composite weighted average cost of capital of 11%. Division Lis considering a project with an expected return of 9.5%

Answer 1

Ans 7) tax rate and market price of stock is in not control of any company thus the correct answer will be the first two options.

Division L should accept the project. Correct answer is option 2nd one

They should accept the project because return is greater than the risk based cost of capital for the division. Correct answer is 2nd one.