1. Weighted average cost of capital is used as a component of the net present value analysis. Why do you think this one component is critical to capital budgeting?

2. Calculate the expected return of Stock a if its beta is 1.5, the market rate of return is 8 percent and the risk free rate is 3%.

3. Calculate the expected return of stock B if is beta is 2.0 the market rate of return is 9%nand the risk free is 2$ ( Use the CAPM formula)

4. If the cost of capital for the project shown below is 3.5 percentage points less than the project’s IRR (for example, if the project’s IRR is 12%, the cost of capital is 8.5%), what is the NPV of the project? Year Cash Flow 0 ($210,000) 1 $40,000 2 $50,000 3 $60,000 4 $60,000 5 $70,000 6 $70,000