Answer Each Question

1. Explain the basic premise of the Clientele Effect. How does this impact the dividend policy implemented by the firm? Your response must be in your own words.

2. If you had started your own business and were contemplating expansion, would you choose to finance your expansion with debt or equity? Justify and defend your choice with sound reasoning. Your answer should be in your own words.

3. When using the Internal Rate of Return method to assess capital projects, what is a common pitfall that might occur if an organization consistently chooses projects with the highest IRR? Your response should be in your own words.

4. What are the five key ways free cash flow is used? How does this relate to an organization s financial plan?

5. If you were the CEO of your organization and were faced with a cash-rich scenario, would you use the cash to issue dividends or buy back stock? What impact would your decision have on earnings per share? Justify and defend your choice with sound reasoning. Your answer should be in your own words.

6. What are the key strengths and weaknesses of the Net Present Value method of assessing capital projects? Your answer should be in your own words.

7. What are the three elements of the Weighted Average Cost of Capital formula? Which of the elements are impacted by taxes? Your answer should be in your own words.

8. How do privately owned firms and small businesses go about estimating their weighted average cost of capital? Your response should be in your own words.

9. What are the three basic steps to creating a set of projected financial statements? Why is this process not as simple as it sounds? Your answer should be in your own words.

10. What is sensitivity analysis and what role does it play in the capital budgeting process? Your answer should be in your own words.