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2. The weighted average cost of capital Aa Aa a The importance of knowing a firm's cost of capital PBBC is considering investing in a project whose risk is greater than the firm's current risk level based on any method for assessing risk. Which of the following should management do when evaluating this project? 0 To take the higher risk level into account, they will need to change the weights on the capital components. 0 To take the higher risk level into account, they will need to use a discount rate that is greater than the cost of capital to evaluate the project. 0 To take the higher risk level into account, they will need to increase the flotation expenses associated with the project. 0 They should always reject the project, because it will increase the firm's risk level. Which of the following statements is correct? 0 The market value of a firm's debt and equity will continuously change throughout the day, but the book value of debt and equity tends to stay more stable over time. Consequently, the firm should use the book-value weight to define its optimal capital structure. 0 When all other factors are held constant, a higher tax rate will lower a firm's weighted average cost of capital only if the firm uses debt financing. 0 If a firm wants to lower its cost of debt, it can simply issue debt with a lower coupon rate