1.Why is it important to estimate a firm’s cost of capital? What does it represent? Is the WACC set by investors or by managers?
2.Do you agree with Ms. Franklin’s calculations? If yes, then justify why. If not, then what is your estimate of the WACC? Are there any errors made in Ms. Franklin’s analysis (if any)? Show workings and justify your assumptions.
3.Which method is better suited for calculating the cost of equity in this case? What are the advantages and disadvantages of each method?
4.Would you recommend Mrs. Simsproposes an investment in AA?Justify your answer
