Question #1. What determines the value of an economic asset (as opposed to an asset that has value for reason of sentiment)?

Question #2. If we know the projected cash flows from loan notes and their current market value, what approach would we take to deducing the cost of the loan notes?

Question #3. Why does businesses seem likely to have a target gearing ratio?

Question #4. What is wrong with using the cost of the specific capital used to finance a project as the discount rate to that project?

Question #5. When calculating the weighted average cost of capital (WACC), should we use market values or balance sheet values as the weights of debt and equity? Explain your response.