Back to Assignment Attempts Keep the Highest: 2 2. The weighted average cost of capital The importance of knowing a firm's cost of capital Warm Duck Brewing Company has two divisions: one is very risky, and the other exhibits significantly less risk. The company uses its investors' overall required rate of return to evaluate its investment projects. It is most likely that the firm will become: O Less risky over time, and its value will increase Less risky over time, and its value will decrease Riskier over time, and its value will increase O Riskier over time, and its value will decrease Which of the following statements is correct? O 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. 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. A firm's after-tax cost of preferred stock may be significantly less than its before-tax cost, because issuing preferred stock dividends creates a tax shelter