7. Why must a company typica

7. Why must a company typically invest in working capital when starting a new project? Why is this investment in working capital recovered at the completion of the project? 8. How does depreciation spread the capital expenditure of a project over the life of the capital asset? Why is using MACRS usually beneficial to a company versus using straight-line depreciation? 9. Why is there typically a tax gain or tax loss at the disposal of capital assets? 10. All six decision models from Chapter 9 rely on the appropriate timing and amount of cash flow. What potential errors can a manager can make if this information is not accurate? 1. Erosion costs. Fat Tire Bicycle Company currently sells 40,000 bicycles per year. The current bike is a standard balloon tire bike, selling for $90.00, with a production and shipping cost of $35. The company is thinking of introducing an off-road bike with a projected selling price of $410 and a production and shipping cost of $360. The projected annual sales for the off-road bike are 12,000. The company will lose sales in fat tire bikes of 8,000 units per year if they introduce the new bike, however. What is the erosion cost from the new bike? Should Fat Tire start producing the off-road bike? 1. From what sources can a company raise capital? Do these different sources of capital all charge the same rate? Why or why not? 2. Why is the yield to maturity on a bond the appropriate cost of debt financing? 3. What are the two different ways to estimate the cost of equity for a firm? 4. Should retained earnings reinvested in the company have a zero cost of capital because the funds are internally generated and the company does not need to pay itself for borrowing money? If not, why? . 5. When calculating the cost of capital, why is it that only the cost of debt is adjusted for taxes? 6. What are two ways to estimate the percentage (weights) of funds that a company has received from lenders and owners? Which is more appropriate?