1. When exploring the Weighted Average Cost of Capital (WACC) we were introduced to the fundamental components that firms use to estimate their hurdle rate. Berk and DeMarzo interviewed Shelagh Glaser, the then VP of finance and the controller at the Client Computing Group at Intel about their WACC estimates. In this interview, she highlighted the inputs that her firm uses to calculate their WACC and provides numerous examples of inputs that they must consider when they re-estimate their WACC each year. Highlight two of these inputs and indicate how changes in these inputs are likely to impact Intels hurdle rate; in addition, illustrate how these changes impact the projects that a firm accepts. Include at least two citations that support your response.
2. Figures 15.7 and 15.9 in Berk and DeMarzo highlight a couple of interesting findings. The first is that certain industries are more likely two have firms that utilize more debt or leverage in their capital structures when compare against others, why is this? Second, firms tend to underutilize debt, which led some to believe that they are not acting in the firms best interest and maximizing firm value; the counterpoint is that increased leverage leads to greater financial distress and by avoiding financial distress they are maximizing firm value. Take one side of this argument and defend that perspective.
3. In Chapter 18, Berk and DeMarzo illustrate the differences between the three main methods that corporations use for capital budgeting with leverage and within imperfect markets, which are: (a) The Weighted Average Cost of Capital (WACC) method. Compare and contrast the three different methods that we use for capital budgeting and highlight each methods strengths and weaknesses. PLEASE CITE IF NEEDED THANKS