### Optimal fraction of debt and the growth rate of a firm

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Question:

Q1. In what ways do uninformed investors trade too much? Discuss how uninformed investors use the CAPM and how their behaviour's deviate.

Q2. Define and discuss MM Proposition I with its implications, and the roles of homemade leverage and the Law of One Price in the development of the proposition.

Q3. What is leveraged recapitalization and what effects does it have on the value of equity?

Q4. Define the optimal fraction of debt and the growth rate of a firm. What is the relationship between the two?

Q5. What is a constant interest coverage policy and how does it impact the levered value of a project?

Q6. Why should issuance costs and mispricing costs be included in the assessment of the project's value? How do you include them?

Q7. Why is it important to calculate the value of the interest tax shield if a firm adjusts its debt annually to a target level?

Q8. For what reasons would a firm use a financial model in projecting future cash flows from an investment, and what are the primary factors to consider when making the cash flow estimates?

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