Finance - Due by December 15 at 3pm

1. Why is there a cost for reinvested (retained) earnings?

2. What are the three ways to determine the cost of equity?

3. If you use book value weights to compute a firm’s weighted average cost of capital (WACC), would the WACC be lower or higher than one computed using market value weights? Explain your answer.

4. List and briefly explain the four mistakes to avoid when computing a firm’s WACC.

5. Under what conditions would a project have more than one IRR? How would you reconcile this problem?

6. Explain why there could be a conflict between the IRR and NPV of a project?

7. When calculating the cash flow of a project, should you subtract the cost of financing the project? Why or why not?

8. List and briefly explain the three types of risk that are relevant for capital budgeting.

9. Why is it important to consider real options in capital budgeting? What are some types of real options?

10. List and briefly explain the primary types of leases.

11. List and briefly explain the common methods of estimating growth rates.