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ABC Inc. estimates that its below-risk projects have a cost of capital of 6%, its average risk projects have a cost of capital of 8%, and its above-average risk projects have a cost of capital of 10%. Which of the following projects (A, B, and C) should the company accept? All of the projects should be accepted. Project B, which is of average risk and has a return of 7.5%. Project A, which is of below-average risk and has a return of 5.5%. Project C, which is of above-average risk and has a return of 9.5%. None of the projects should be accepted. Question 28 (1.33 points) An unlevered firm has a value of $500 million. An otherwise identical but levered firm has $80 million in debt and a 5% cost of debt. No growth is expected. The unlevered cost of equity is 11%. If interest expenses are tax deductible, bankruptcy costs are 0, and the corporate tax rate is 35%, what is the value of the levered firm? $580 million $528 million $643 million $560 million $828 million Consider the Modigliani and Miller (M&M) and Tradeoff theories of capital structure. Assume there are taxes and bankruptcy costs. Which of the following statements is / are correct? 1. Firm value always increases as more debt is added II. Firm value stays constant as more debt is added III. WACC always decreases as more debt is added IV. WACC always increases as more debt is added V. WACC stays constant as more debt is added Il and V only None of the statements are correct II and III only I and III only I and IV only