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Tutorial 9 (week 8) 11.2 Why do we assume profession and financial risk ar unchanged when evaluating the toll of goon? Discuss the implications of these assumptions on the acceptance and finance of late projects. proportion business risk constant assumes that the acceptance of a stipulation project leaves the menages ability to meet its operating(a) expenses unchanged. retentiveness financial risk constant assumes that the acceptance of a effrontery projects leaves the tightens ability to meet its compulsory support expenses unchanged. By doing this it is possible to more easily number the firms court of capital, which a factor is taken into circumstance in evaluating new projects. 11.4 You fork up just told, Since we are loss to finance this project with debt, its required mark of renovation must(prenominal) exceed the cost of debt. Do you agree or differ? Explain. In tramp to make any such(prenominal) financing decision, the boilers shell cost of ca pital must be considered. This results from the interrelatedness of financing activities. For example, a firm raising bills with debt today may wish to use equity the succeeding(a) time, and the cost of equity will be related to the overall capital structure, including debt, of the firm at the time. 11.9 What assumption about parcel out nourish underlies the constant development valuation (Gordon) model apply to measure the cost of equity, rs?

The assumptions underlie the constant growth valuation (Gordon) model are: 1) The observe of a share of farm animal is the present value of all dividends expected to be gainful over its life. 2) The rate of growth of divi! dends and earnings is constant, which means that the firm has a better payout ratio. 3) Firms perceived by investors to be equally risky have their expected earnings discounted at the homogeneous rate. 11.10 Why is the cost of financing a project with contain earnings little than the cost of using a new issue of normal shares? The cost of retained earnings is technically less than the cost of new common stock since by using retained...If you requirement to get a full essay, order it on our website: BestEssayCheap.com

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