1. In what way can a firm greatly reduce the problem associated with basing its decisions on inaccurate results from using firm-wide WACC for all projects?
A. Calculate WACCs using the separation principle.
B. Use proxy betas to calculate WACCs.
C. Calculate WACCs for each division separately.
D. Calculate WACCs firm-wide using the objective approach.
2. The common shares of Jones & Smith, Inc. sell for $22 per share. The firm is expected to set its next annual dividend at $0.68 per share, and all future dividends are expected to grow by 5 percent per year indefinitely. If Jones & Smith, Inc., experiences a flotation cost of 15 percent on new equity issues, what will be the flotation adjusted cost of equity?
A. 5.87 percent
B. 7.92 percent
C. 8.64 percent
D. 6.63 percent