cost of capital

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Answer the following questions in your own words:
1.Why do we use the overall cost of capital for investment decisions even when only one source of capital will be used (e.g., debt)?
2.In computing the cost of capital, do we use the historical costs of existing debt and equity or the current costs as determined in the market? Why?
3.Why is the cost of retained earnings equal to the firm’s required rate of return on its common stock (Ke)?
4.If the company has the opportunity to earn a rate of return less than its cost of capital, but it will still generate a profit, should it make the investment? Why or why not?
DIRECTIONS/GUIDELINES:
Review your the PowerPoint file, the end of chapter questions and answers, and the textbook prior to answering.  Consult with outside resources if you need further information but be sure to cite all sources properly (in text citations and a reference list).
APA format is required.  Title pages are required, but abstracts are not necessary.
Please pay close attention to proofreading, punctuation, and overall writing quality.
There is no minimum word count.  In fact, business writing ought to be clear, concise, and efficient.  Employers don’t want to read excess words that are unnecessary to the message.  Stay direct and to the point but carefully and thoughtfully address each question.
It is recommended to review the grading rubric in advance to understanding the grading scheme.
Rubric
Chapter 11 Discussion Rubric
Chapter 11 Discussion Rubric
Criteria    Ratings    Pts
This criterion is linked to a Learning Outcome Accuracy & Quality of Content (#1): Did the student demonstrate an understanding of why the overall cost of capital is used for investment decisions even when only one source of capital is used (e.g., debt)?
4.0 pts
This criterion is linked to a Learning Outcome Accuracy & Quality of Content (#2): Did the student articulate whether the historical costs of existing debt and equity or the current costs are used with an adequate explanation for why?
4.0 pts
This criterion is linked to a Learning Outcome Accuracy & Quality of Content (#3): Did the student demonstrate an understanding as to why the cost of retained earnings is equal to the firm’s required rate of return on its common stock (Ke)?
4.0 pts
This criterion is linked to a Learning Outcome Accuracy & Quality of Content (#4): In the event that a company has the opportunity to earn a rate of return less than its cost of capital, but it will still generate a profit, did the student properly identify and explain his or her rationale as to whether the company should it make the investment?
4.0 pts
This criterion is linked to a Learning Outcome Spelling, grammar, punctuation & proofreading
4.0 pts
Total Points: 20.0

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