1. Under what situations would you want to use the CAPM approach for estimating the component cost of equity? The constant-growth model?

2. Suppose your firm wanted to expand into a new line of business quickly, and that management anticipated that the new line of business would con- stitute over 80 percent of your firm's operations within three years. If the expansion was going to be financed partially with debt, would it still make sense to use the firm's existing cost of debt, or should you compute a new rate of return for debt based on the new line of business?