1. Corporate income taxes have the effect of

increasing the after-tax cost of debt for a firm.

decreasing the after-tax cost of debt for a firm.

decreasing the after-tax cost of equity for a firm.

increasing the after-tax cost of equity for a firm.

2. According to the Pecking Order Hypothesis, what is the sequence of sources of funds that a firm will typically access when obtaining capital for additional investments:

A) Debt issues, equity issue, retained earnings

B) Debt issues, retained earnings, equity use

C) equity issue, debt issue, retained earnings

D) It is irrelavent since WACC is independent of capital structure

E) Retained earnings, debt issue, and equity issue