Suppose you are the manager of a family firm producing a single product line, financed by retained earnings. Explain how and why you use the NPV rule to decide on project investments, some of which may be more risky than others.

TOPIC: Write a well-structured essay on the following. Include your personal observations in italics where appropriate. 3000 words.

Please read the essay topic carefully to ensure that you give a full account.

(a) Suppose you are the manager of a family firm producing a single product line, financed by retained earnings. Explain how and why you use the NPV rule to decide on project investments, some of which may be more risky than others (approximately 1000 words).

(b) You are going to become a publicly listed company by selling shares freely to many investors but you do not intend to carry any debt. Discuss the principles and procedures associated with any change that would need to be made to the discount rate used by the firm. (approximately 1000 words)

(c) Indicate whether the firm should change its capital structure so that it is funded partly by debt and comment on any implication of this for the discount rate. (approximately 1000 words)

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