1. Maureen owns 200 shares of Microsoft, Inc. Describe her opportunity cost?
2. Describe how risk is associated with opportunity cost.
3. Explain why book values should not be used to evaluate costs of capital.
4. Identify the components of a firm's total capital the method used to quantify them. Why are they averaged?
5. Discuss some problems associated with using the bond's coupon rate as its component cost, is there ever a time that it can be used?
6. Describe the steps you would take to estimate the total component cost of capital for 5 bonds, each with a different number of years to maturity, everything else the same.
7. Provide two examples of flotation costs. Explain, in your own words, why they add to the cost of capital.
8. Explain a firm's target weights and its relationship to book value and market value weights.