1. Why does a company’s capital have a cost?
2. Why is the rate that debt holders require to entice them to lend money to a company different from the
company’s effective cost of debt capital?
3. Assume that the corporate tax rate is 21%. Congress is discussing increasing the corporate tax rate to 32%.
How might this change the capital structures that companies choose?
4. Describe the order of claimants and how it impacts the returns that various providers of capital require to
entice them to provide funding to a company.
5. Explain what is meant by trade-off theory.