Write out the formula for the company cost of capital, ignoring taxes. For what projects is this the correct discount rate? (page 216 of the book)
What are the advantages of an industry cost of capital rather than a cost of capital estimated for a single firm? (page 221 of the book)
Explain carefully how you would estimate beta for a publicly traded stock. (page 219 of the book)
What is operating leverage and why does it increase project risk? (pages 225-226 of the book)
We described two methods to account for risk when calculating PV. The first is to discount the expected cash flow at a risk-adjusted discount rate. Explain the other method. (pages 226-228 of the book)
Most managers, most of the time, use the same discount rate for each period's cash flow. When is this not correct? (pages 228-230 of the book)
Suppose your shareholders own only U.S. stocks. Would you expect an overseas investment to have above- or below-average risk for them? Would your answer change if they held an internationally diversified portfolio? What implications does your answer have for the cost of capital for overseas investments? (pages 231-233 of the book)
What do we mean when we say "avoid fudge factors in the discount rate?" How should the manager allow for the possibility of bad outcomes? (page 223 of the book)
