1) What do you mean by the stand-alone principle? Why is it significant to analysis of capital projects? What do you understand by a sunk cost? Why is it significant to understand this concept when analyzing capital projects? What is meant by operating leverage? How is it find outd? Why is it significant to the analysis of capital expenditure projects?
2) You are examining stock valuation techniques with your broker. You state that your Finance professor mentioned that “a stock which will never pay the dividend is valueless.” Your broker says this is not true since:
i) You can always sell stock to someone else (hence, capital gain is possible)
ii) Share of stock represents the share of ownership in something tangible (that is, the issuing firm).
Argue for or against your broker’s position.
3) In examining asset pricing, your textbook recommends that the investor will be indifferent between two bonds with equal yield to maturity, as long as they are of equivalent risk. Can you think of any real-world factors which might make the investor prefer one of these bonds over other?