Please answer the following questions on the Le Beau Footwears case. The consultant for the Le Beau Footwears case argued that the cost of capital and the return on investment approaches provide appropriate methodologies to measure the monetary value of the damage to the company due to the insurance companys action.

a)Discuss the rational underlying this assertion.

b)The consultant had to consider three specific adjustments to the estimated cost of capital for the Department Stores Index to arrive at the cost of capital for Le Beau Footwear. What were those adjustments? Why were they necessary? Explain.

c)Why were the installments paid by the insurance company compounded at the risk-free rate while the insurable loss ($1,059,608) was compounded at Le Beaus estimated cost of capital?