Expert Solutions

1 Because the weighted average given in Equation(17.4) is always a correct measure of a required return, why do firms not create securities to finance each project and offer them in the capital market in order to accurately determine the required return for the project?

2 The development of the new issue junk bond market had important implications for capital structure choice. The existence of a viable junk bond market means that firms can comfortably maintain higher degrees of leverage than they could prior to the development of this market. Do you agree or disagree? Justify your answer.

3 Suppose that your firm is operating in a segmented capital market. What actions would you recommend to mitigate the negative effects?