Reference no: EM133068447
Question 1: What is cost of capital? What does it represent?
Question 2: Why is it important to estimate cost of capital?
Question 3: Is cost of capital set by investors or managers?
Question 4: How should Dale and Lee estimate the cost of long-term debt? Should short-term debt be considered in calculating cost of capital?
Question 5: How should Dale and Lee estimate the cost of equity? Use Dividend discount model (g = (1- DPSEPS) * ROE
a. Use dividend discount model to estimate cost of equity. Calculate growth rate using historical dividend growth rate and ROE*retention rate formula.
b. Use capital asset pricing model to estimate cost of equity.
c. Discuss which model is more appropriate in this case.
Question 6: How should Dale and Lee calculate the weights for debt and equity?
Question 7: Calculate Walrnart's cost of capital. How should Walrnart use this number?
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