WineCellars Inc

question 57

Multiple Choice

WineCellars Inc.currently has a weighted average cost of capital of 12%.WineCellars has been growing rapidly over the past several years,selling common stock in each year to finance its growth.However,due to difficult economic times this year,WineCellars decides to cut its dividend and increase its retained earnings so that the common equity portion of its capital structure will include only retained earnings and no new common stock will be sold.WineCellars' weighted average cost of capital this year should be

• A) zero, since no new stock will be sold.
• B) less than 12%.
• C) equal to 12%.
• D) greater than 12%.

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