Application Exercises 2. A project has 50% debt, 50% equity.If the proportion of debt increases and the proportion of equity decreases by the same amount, what happens to the weighted average cost of capital?  3. Define payback period and explain how lenders and investors make investment decisions using this tool.

4. Define net present value and explain how lenders and investors make investment decisions using this tool.

5. Define internal rate of return and explain how lenders and investors make investment decisions using this tool.

8a. If the market capitalization rate for a hotel is 10% and the sale price of the hotel is $600,000, what is the trailing 12 months' cash flow? Capitalization Rate 10.0% Sale Price $600,000 Trailing Cash Flow? $60,000 8b. What would the trailing twelve months' cash flow have been if the market capitalization rate for the hotel is 20% and the sale price of the hotel is $600,000? Capitalization Rate 20.0% Sale Price $600,000 Trailing Cash Flow? $120,000 9. Explain how the timing of a stream of cash flows can affect the internal rate of return of an investment.