Reference no: EM132652426

1-Assume that the risk-free rate increases, but the market risk premium remains constant. What impact would this have on the cost of debt? What impact would it have on the cost of equity?

2-What are three potential flaws with the regular payback method? Does the discounted payback method correct all three flaws? Explain.

3-What is a mutually exclusive project? How should managers rank mutually exclusive projects?

4-Explain why sunk costs should not be included in a capital budgeting analysis but opportunity costs and externalities should be included. Give an example of each.

5-What are some differences in the analysis for a replacement project versus that for a new expansion project?

6-If you were the CFO of a company that had to decide on hundreds of potential projects every year, would you want to use sensitivity analysis and scenario analysis as described in the chapter, or would the amount of arithmetic required take too much time and thus not be cost-effective? What involvement would non-financial people such as those in marketing, accounting, and production have in the analysis?