1.Failing to account for flotation costs when computing the cost of equity and therefore the WACC, will lead to a(n) ____________ bias in the WACC and lead to a bias ___________ accepting projects.

Select one:

A. downward; in favor of

B. downward; against

C. upward; in favor of

D. upward; against

E. none of the above answer are correct.

2. Craig and Craig Company has a WACC that equals 14%. They also have three divisions with their own specific required return. For example, division A, B, and C have required rates of return of 8%, 18%, and 16%. The internal rates of return for projects conducted by division A, B, and C are 15%, 16%, and 15%. Using the appropriate discount rate(s), which projects should the company take on?

Select one:

A. Project A

B. Projects A and B

C. Projects A and C

D. Projects B and C

E. Projects A, B, and C