1. List one strength and one weakness of credit ratings as a key ingredient in corporate credit risk measurement methods, with brief explanations.
2. What is (are) the most important cash flow(s) in a capital budgeting analysis? Why?
3. Calculate the required rate of return for Mudd Enterprises assuming that investors expect a 3.6% rate of inflation in the future. The real risk-free rate is 2%, and the market risk premium is 5.5%. Mudd has a beta of 2.4, and its realized rate of return has averaged 12% over the past 5 years. Round your answer to two decimal places.