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Answer the following conceptual questions related to the estimation of WACC components. a. Should the...

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Finance

Answer the following conceptual questions related to the estimation of WACC components.

a. Should the weights used to calculate the WACC be based on book values, market values, or something else? Explain.

b. If the companys bond are publicly trading, how would you compute the pre-tax cost of debt? Explain first assuming that there is low chance of default and then assuming there is a high chance of default and hence expected loss.

c. Another approach to estimating cost of equity is the dividend growth approach. You need to have information regarding 3 inputs if you want to use this model current price, current dividends, and the dividend growth rate. What are three ways to estimate the expected dividend growth rate?

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