Posted: May 9th, 2016

How should the capital structure weights used to calculate the WACC be determined?

Assume that the risk free rate increases. What impact would this have on the cost of debt? What impact would it have on the cost of equity?

How should the capital structure weights used to calculate the WACC be determined?

Suppose a firm estimates its WACC to be 10 percent. Should the WACC be used to evaluate all of its potential projects, even if they vary in risk? If not, what might be reasonable costs of capital for average , high , and low risk projects?

The WACC is a weighted average of the costs of debt, preferred stock, and common equity. Would the WACC be different if the equity for the coming year will all come in the form of retained earnings versus some equity from the sale of new common stock? Would the calculated WACC depend in anyway on the size of the capital budget? How might dividend policy affect the WACC?