DQ

Draft a response to each of the bulleted questions below. Each question must have its own response and have a minimum of 50 words.

1.      What are main elements in calculating the cost of capital? How does an increase in debt affect it? How do you identify an organization's optimal cost of capital?

2.       Are there any more advantages or concerns for debt financing in addition to risk and tax shield?

3.      Why do we use market-based weights instead of book-value-based weights when computing the WACC?

4.      Under what situations would you want to use the CAPM approach for estimating the component cost of equity? The constant-growth model?

5.      In a cost-cutting proposal, what might cause you to sometimes have negative EBIT?

6.      Will an increase in flotation costs increase or decrease the initial cash flow for a project?

7.      What is capital planning? Why is the internal rate of return important to an organization? Why is net present value important to a project? How do you select from multiple projects presented to your organization?

8.      Suppose a company wanted to double the firm’s value with the next round of capital budgeting project decisions. To what would it set the PI benchmark to make this goal?

9.      Suppose a company faced different borrowing and lending rates. How would this range change the way that you would compute the MIRR statistic?