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Finance of Business Questions wk 4


Finance of Business Questions wk 4 1) How does an increase in debt affect it? How do you identify an organization’s optimal cost of capital? 2) What is meant by weighted average cost of capital (WACC)? What are some components of WACC? Why is WACC a more appropriate discount rate when doing capital budgeting? What is the effect on WACC when an organization raises long-term capital? (100 word min) 3) Of the 3 parts of the WACC, which one do you feel is the most important? 4) What is the formula for the after tax cost of debt (bonds)? 5) What is an initial public offering (IPO)? How does an IPO allow an organization to grow financially? When is a merger or an acquisition, instead of an IPO, more appropriate? (100 word min) 6) Explain risks and returns & Capital Asset Pricing Model (CAPM) and its use. (Ch8) 7) What is the difference between purchasing and leasing? Provide an example 8) Explain Term Loans and its usage along with restrictions. Questions 1, 3, 4, 6, 7, & 8 min of 75 words each. 2 & 5 min of 100 words.


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