Posted: July 7th, 2016

What are the two primary ways for a company to finance its business?

The initial investment in the project is $45,000. The firm’s cost of capital is 12%, however projects in this risk class have a 14% required rate of return. The risk-free rate is 8%.

Year Cash Inflow
1 $23,000
2 19,000
3 15,000
4 13,000
5 $10,000

1. Use CAPM to calculate the Risk Adjusted Discount Rate to use to evaluate this proposed project.

2. Calculate the Net Present Value of this project using the RADR calculated in Part 1.

Can someone show me how to do this?

What are the two primary ways for a company to finance its business? Which would you choose if you were forming a corporation and trying to raise funds and why?

Your co-worker, Sam, tells you that he is going to purchase common stock in a new start-up company in hopes of seeing a big return on his investment. He tells you that he wouldn’t consider preferred stock because there is a very slim possibility of any type of large return. Explain why you agree or disagree.