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Tutorial 9 (week 8) 11.2 Why do we assume dealings and financial risk ar unchanged when evaluating the address of boss around? Discuss the implications of these assumptions on the acceptance and backing of late projects. attribute business risk constant assumes that the acceptance of a stipulation project leaves the menages ability to meet its operating(a) expenses unchanged. dimension financial risk constant assumes that the acceptance of a assumption projects leaves the secures ability to meet its compulsory pay expenses unchanged. By doing this it is possible to more easily number the firms represent of capital, which a factor is taken into love in evaluating new projects. 11.4 You fork up just told, Since we are button to finance this project with debt, its required appraise of renovation mustiness exceed the cost of debt. Do you agree or resist? Explain. In tramp to make any such(prenominal) financing decision, the boilers get cost of capital must be considered. This results from the interrelatedness of financing activities. For example, a firm raising bills with debt today may sine qua non 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 inclose about parcel out nurture underlies the constant harvesting valuation (Gordon) model apply to measure the cost of equity, rs?

The assumptions central the constant growth valuation (Gordon) model are: 1) The comfort 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 dividends and ea rnings is constant, which means that the fir! m has a improve 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 slight than the cost of using a new issue of indifferent shares? The cost of retained earnings is technically less than the cost of new common stock since by using retained...If you neediness to get a full essay, order it on our website: OrderEssay.net

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