1. If you bought a share of common stock, you would probably expect to receive dividends plus an eventual capital gain. Would the distribution between the dividend yield and the capital gains yield be influenced by the firms decision to pay more dividends rather than to retain and reinvest more of its earnings? Explain.
2. Suppose a firm estimates its WACC to be 10%. Should the WACC be used to evaluate all of its potential projects, even if they vary in risk? If not, what might be reasonable costs of capital for average-, high-, and low-risk projects?
