Cost of Capital 3 - B C D E 2 If a U.S company with t wo...

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Old Exam Questions - Cost of Capital Page 3 of 27 Pages cost. B. The weighted average cost of embedded/historical capital (capital already raised by the firm) will have little significance when the firm looks at taking on new projects that will require them to issue additional capital. C. Assume that a firm is comprised of two divisions that differ significantly in risk and, therefore, in terms of their divisional screening rates. If the firm evaluates all investments by using a weighted average corporate cost of capital (rather than using divisional screening rates), the firm is likely to become more risky by taking on more of the higher-risk projects and become less valuable by taking on projects that earn a rate of return that is less than what they should be earned based on the actual risk of the project. D. Flotation costs may not be a significant factor for a firm’s bonds, since many bond issues are privately placed (sold to institutional investors) with minimal administrative expense. That is, the firm essentially nets what the institutional
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