1. (True/False): A firm's cost of capital will generally increase if the firm lowers its debt-equity ratio.
2. (True/False): The cost of equity will generally increase for risky firms when the risk-free rate of return increases.
3. To calculate the present value of a business, the firm's free cash flows should be discounted at the firm's:
A. weighted-average cost of capital.
B. pre-tax cost of debt.
C. aftertax cost of debt.
D. cost of equity.
4. An increase in which one of the following is most apt to decrease the WACC of a firm that has both debt and equity in its capital structure?
A. Firm's beta
B. Market rate of return
C. Tax rate
D. Yield on preferred stock