9. Factors that affect the WACC equation Aa Aa Each of the following factors affects the weighted average cost of capital (WACC) equation. Which are factors that a firm cannot control? Check all that apply. Interest rates in the economy Tax rates The firm's dividend payout ratio The general level of stock prices The impact of cost of capital on managerial decisions Consider the following case: McFann Co. has two divisions, L and H. Division L is the company's low-risk division and would have a WACC of 8% if it were operated as an independent company. Division His the company's high-risk division and would have a WACC of 14% if it were operated as an independent company. Because the two divisions are the same size, the company has a composite WACC of 11%. Division H is considering a project with an expected return of 12%. Should McFann Co. accept or reject the project? O Accept Reject On what grounds do you base your accept-reject decision? O Division H's project should be rejected, because its return is less than the risk-based cost of capital for the division. O Division H's project should be accepted, because its return is greater than the risk-based cost of capital for the division.