A company's cost of capital may be affected by one or more of the following factors:

1. interest rates
2. tax rates
3. capital structure
4. dividend policy
5. investment policy

Which of the following statements is true?

A. Only factors 1 and 2 are under the company's direct control.
B. Only factors 3, 4, and 5 are under the company's direct control.
C. All five factors are under the company's direct control.

Correct Answer: B

The company makes decisions that determine (3) capital structure, (4) dividend policy, and (5) investment policy. Therefore, it has direct control over those three factors. However, (1) interest rates and (2) tax rates are determined by decisions largely out of the company's control.