1. a) You are the CFO of Starbucks, and you consider investing in a new venture and specifically to introduce the Starbucks smart phone. Why the Starbucks WACC is not the appropriate discount rate to use for NPV calculations? Briefly explain how you could estimate the appropriate discount rate.

b) Suppose that a company has used the discounted payback period for investment appraisal and has found that the project will never recover back the initial investment. What do you recommend the company to do? Explain. Assume that the company does not have any specific optimal payback period.