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