Why-should-the-cost-of-capital-used-in-capital-budgeting-be-calculated-as-a-weighted-average-of-the-various-types-of-funds-the-firm-generally-uses-

answer questions. The essay answer should be between 100 to 400 words per question.

1.Why should the cost of capital used in capital budgeting be calculated as a weighted average of the various types of funds the firm generally uses, not the cost of the specific financing used to fund a particular project?

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2. Should capital budgeting decisions be made solely on the basis of project’s NPV?

3. Federal corporate tax rates in the U.S. range between 34% to 40%. Congress is considering changing the corporate tax rate structure. Discuss how a change to the corporate tax rate (higher or lower) will impact the weighted average cost of capital and capital budgeting decisions – NPV, IRR, PI, and Payback Period (Be specific)?

4. For capital budgeting decisions, discuss the impact of using a discount rate which is incorrect, either too high or too low on manager’s decisions for NPV, IRR, PI, and Payback Period (Be specific)?

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