Suppose the risk-free rate increases but the market risk premium stays the same, what is the effect on the cost of debt? What is the effect on the cost of equity?
It is a fact that: If a firm has only independent projects, a constant WACC, and projects with normal cash flows (i.e., cash flow 0 is negative and all others are positive), the NPV and IRR methods will always lead to the same capital budgeting decisions. Discuss how changing each of the three embedded assumptions would change the conclusion.
Discuss why sunk costs should not be included in project cash flows but opportunity costs and externalities should. Give an original example of each of these costs.