(a)

Comment on the following:

Since net present value (NPV) method is considered by many people to be the best form of

analysis when analysing investment opportunities, we should always only use the net present

value (NPV) method when making capital budgeting decision.

(b)

In calculating cash flows for capital investment decisions, should interest expenses be

subtracted? Explain why.

( c)

Stock A has a beta of 1.5. The risk free rate is 3 percent and the market risk premium is 7

percent. The expected return of the market portfolio is 10 percent, what is the expected return

of stock A?

(d)

In evaluating a firms cost of debt, should one consider corporate tax rate? Why?

value (NPV) method when making capital budgeting decision.