investors’ expectations about inflation

1. What impact will investors’ expectations about inflation have on a firm’s cost of debt? Will the firm’s cost of equity be affected? Explain.
2. Explain why, for a particular firm, the cost of retained earnings, rs, will always be less than the cost of new equity, re.
3. Suppose a firm invests in projects that much riskier than its average investments. Do you think the firm’s weighted average cost of capital will be affected? Explain.