2.a (10 marks) ROIC's standard deviation or CV (coefficient of variation) has been

used to measure the business risk of a company. Can we use ROE's standard

deviation or CV to measure the financial risk of company? Why or why not?

2.b (10 marks) A company BCD, a company listed in the NYSE, is considering

expanding its operations by investing a new factory. There are two plans for the

construct new factory: Plan A will make production in the new factory having high

fixed costs but low marginal cost while plan B will make the production involving

low fixed costs and high marginal costs. Suppose that BCD is still uncertain about

its target capital structure but want to maintain a low WACC. If plan A is adopted

rather than plan B, to finance the new project, is BCD more likely to issue new

debt or to issue stock? Why?