1. How is capital budgeting similar to security valuation? How is it different?

2. Why is the NPV the primary capital budgeting decision criterion?

3. Explain briefly how a sensitivity analysis is done and what the analysis is designed to show.

4. Explain operating leverage.

5. Calculate the operating breakeven for the following Plans:

     Plan A. Fixed cost of $40,000. Variable cost per unit is $4.00 and fixed cost is $2.00 per unit.

     Plan B. Fixed cost of $120,000, Variable cost of $3.00 per unit and fixed cost of $1.50 per unit.

6. Calculate the Weighter Average Cost of Capital:

     Source of Capital         Amount of funds       Percent of Total

      Bonds                         $1,750,000                35%

      Preferred stock             $250,000                  5%

      Common stock          $3,000,000                 60%

7. Explain the ideas behind the dividend irrelevance theory?

8. Why is the declaration date importnat to share holders when dividends are being paid out?

9. How can a company reward shareholders, when the capital appreciation is non-existence?

10. What are the two ways shareholders benefit from owning stocks?