Questions

Read Ch.10, Ch.11, Ch.12- 327

Read Chapter 10 in the textbook (Brigham, E., & Houston, J. (2012). Fundamentals of Financial Management, Concise 7th Edition. Southwestern Cengage Learning. ISBN-10: 0-538-47711-3; ISBN-13: 978-0-538-47711-6 Calculator). Answer these questions:

1. What are the firm's three major capital structure components?

2. Why is the after-tax cost of debt rather than the before-tax cost used to calculate the WACC?

3. How do you estimate the cost of preferred stock?

4. How do you estimate the cost of retained earning?

5. How do you estimate the cost of new issued common stock?

6. What is the formula for the WACC?

Read Chapter 11 in the textbook. Answer these questions:

1. What are the major capital budgeting decision criteria?

2. What are the differences between independent and mutually exclusive projects?

3. How do you calculate the project's NPV?

4. How do you calculate the project's IRR?

5. What is payback period?

6. What is discounted payback period?

Read Chapter 12 in the textbook. Answer these questions:

 

1. What are the "relevant" cash flows that should be included in a capital budgeting analysis?
 

2. What are the cash flows that should not be included in a capital budgeting analysis?
 

3. Explain the flowing terms: incremental cash flow, sunk cost, opportunity cost, externality, and cannibalization.