Task1. Using the WACC to evaluate all projects might lead managers in the accepting high-risk projects that don’t compensate adequately for risk and in the rejecting low-risk projects that compensate fully for the level of risk but might not have particularly high rates of return. Explain the conditions when using a WACC is not appropriate and how these incorrect decisions might be made.
Question1. Describe why firms in airline industry have so much debt compared to any other industries.
Question2. What industry has lowest profit margin?
Question3. What industry converts greatest amount of sales dollars in profit?
Question4. What is an incremental cash flow for the project?
Question5. What concepts do we require to examine to help understand how to estimate the incremental cash flow of a project?
Question6. What else is required for deciding on whether or not to choose a project?
Question7. Most companies don’t have the resident expertise to complete the initial public offering (IPO), so they appoint an investment banker to help accomplish the sale. Explain three imperative tasks which an investment banker provides.
Question8. Explain the relationship between yield to maturity and coupon rate of bond.