Week 4 DQ

Answer questions below 1500 min word count.


The Weighted Average Cost of Capital (WACC) provides insight into the cost of funds for an entity.  When is WACC an appropriate discount rate when doing capital budgeting? What are the considerations when an entity is looking at opening a new location or adding a product line?  How should risk be factored into the analysis?


Why is the risk/return trade-off important in analyzing an entity’s capital structure?  What are critical considerations for an entity when targeting a particular capital structure?  What effect will an entity’s capital structure have on cash flow?


Your company is considering various means for raising additional funds needed for an expansion project.  Your entity is currently privately-held, but you have sufficient critical mass to go public.  How would you expect to use the services of an investment banker in assessing your options?  If you go public, you know that the investment banker will service as an intermediary.  What are their interests in helping you?  What concerns would you have in setting an offering price?  Why?