1) Iron Company sells its irons for= $50 apiece wholesale. Production cost is= $40 per iron. There is a 25% chance that wholesaler Q will go ruined within next year. Q orders 1,000 irons and asks for 6 months’ credit. Should you accept order? Suppose that discount rate is 10% per year, there is no possibility of repeat order, and Q will pay either in full or not at all.
2) Estimate statement that Weighted Average Cost of Capital (WACC) for a company (supposing that all assumptions in Proposition 1 hold) is always less than or equal to cost of equity of a company.