Cost of Capital. Determine whether each of the following would increase or decrease the firm's cost of capital for investment project evaluation. Explain.
A. The company's stock price suffers a sharp decline, but no decline in the company's earnings potential is perceived.
B. A merger with a leading competitor increases the company's stock price substantially.
C. The company's home state increases the corporate state income tax.
D. In an effort to spur business activity, Congress cuts corporate income taxes.

Question

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The Answer of Cost of Capital. Determine whether each of the following would increase or decrease the firm's cost of capital for investment project evaluation. Explain.
A. The company's stock price suffers a sharp decline, but no decline in the company's earnings potential is perceived.
B. A merger with a leading competitor increases the company's stock price substantially.
C. The company's home state increases the corporate state income tax.
D. In an effort to spur business activity, Congress cuts corporate income taxes.