1. The ROIC on a project must be (higher, equal, or below) the cost of capital for the project to create wealth for the company? 2. Between using book weighting or market weightings, which is more justied in theory? Explain. 3. Between debt and common stock, which form of capital is less expensive for the corporation? Why? 4. What adjustment is needed to the pretax cost of debt to get the after-tax cost of debt? Why? 5. What is Beta and what does it measure? and how could you estimate a beta if you are not a publicly traded company? 6. There are two companies, Company 1 has a Beta of 4, and Company 2 has a Beta of 1.8. Which of these companies is an electric utility and which is a technology company? Why? 7. As a company uses more and more equity in its capital structure (and less debt} what is it doing to the nancial risk of the company- increasing it or decreasing it? 8. You are running a company with two divisions. One division is high risk and the other division is low risk. Which division should [or is expected to} earn a higher rate of return or ROIC? Why? 9. Do most industries have the same optimal financing mixture, or does it change depending on the industry? Explain 10. You are a company with two divisions (in the table below}. One is high risk and the other division is low risk. Which division should get additional funding for its proposed projects? Why? Criteria Cost o Capital Expected return on proposed projects Hiahriskd'wision _ 7% mm... W