Why should the cost of capital used in capital budgeting be calculated as a weighted average of the various types of funds the firm generally uses,

answer questions. The essay answer should be between 100 to 400 words per question.

1.Why should the cost of capital used in capital budgeting be calculated as a weighted average of the various types of funds the firm generally uses, not the cost of the specific financing used to fund a particular project?

2. Should capital budgeting decisions be made solely on the basis of project’s NPV?

3. Federal corporate tax rates in the U.S. range between 34% to 40%. Congress is considering changing the corporate tax rate structure. Discuss how a change to the corporate tax rate (higher or lower) will impact the weighted average cost of capital and capital budgeting decisions – NPV, IRR, PI, and Payback Period (Be specific)?

4. For capital budgeting decisions, discuss the impact of using a discount rate which is incorrect, either too high or too low on manager’s decisions for NPV, IRR, PI, and Payback Period (Be specific)?

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