How would each of the following scenarios affect a firm's cost of debt, r d (l - t), t=tax rate; its cost of equity, rs; and its WACC? Indicate with an increase (I), a decreease (D), or no change (N) whether the factor would raise, lower, or have an indeterminate effect on the item in question. Assume for each answer that other things are held constant, even though in some instances this would probably not be true.      rd (1-t) rs  WACC 4) The dividend payout ratio is increased.         5) The firm expands into a risky new area.         6) Investors become more risk-averse.         7) The firm is an electric utility with a large investment in nuclear plants.  Several states are considering a ban on nuclear power generation.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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How would each of the following scenarios affect a firm's cost of debt, r d (l - t), t=tax rate; its cost of equity, rs; and its WACC? Indicate with an increase (I), a decreease (D), or no change (N) whether the factor would raise, lower, or have an indeterminate effect on the item in question. Assume for each answer that other things are held constant, even though in some instances this would probably not be true. 

    rd (1-t) rs  WACC
4) The dividend payout ratio is increased.        
5) The firm expands into a risky new area.        
6) Investors become more risk-averse.        
7) The firm is an electric utility with a large investment in
nuclear plants.  Several states are considering a ban
on nuclear power generation.
       
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