(Related to Regardless of Your Major: Understanding the Role of the Cost of Capital on page 446) In theRegardless of Your Major: Understanding the Role of the Cost of Capital feature, what should be the opportunity cost of funds in valuing the cash flows from the ownership of a McDonald’s franchise? How would you respond to your friend after having read the entire chapter? Remember that your friend is a complete novice when it comes to finance, so try to be very clear in your guidance.
(Related to Regardless of Your Major: Capital Structure Matters to You! on page 482) In the Regardless of Your Major feature box we learned about the dangers of using a high proportion of debt financing faced by both General Motors (GM) and Lehman Brothers. How could the failure of these firms possibly matter to you personally or to your parents?
Initial public offerings occur frequently. Go to a calendar of new offerings, select a company that has just issued stock or is about to issue stock, and track the price for a week after the IPO. Did the price increase by more than 10 percent after the IPO? Possible sites include Hoover’s IPO Central (http://www.hoovers.com/global/ipoc) or IPO Monitor (http://ipomonitor.com). You may also search for sites using Google by typing in “IPO.”