1. In Berk and DeMarzo the authors interview David Holland, who at the time was a Senior Vice President and Treasurer of Cisco, in that interview he states that Cisco uses ‘robust NPV analysis,’ which means that the company integrates sensitivity and scenario analysis into their NPV calculations. Provide a simple example of a project and indicate how you might implement both a sensitivity and scenario analysis into your project’s evaluation. Include at least two citations that support your response.
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3. Two of the ‘workhorses’ of capital budgeting are the Net Present Value (NPV) and the Internal Rate of Return (IRR) calculation. In practice, we rely on the NPV calculation to make our decisions; however, the IRR calculation is a useful calculation to employ when we attempt to compare projects. Highlight the three potential pitfalls that Berk and DeMarzo outline and illustrate with an example how each of these issues would lead managers to make incorrect decisions about accepting a project. Include at least two citations that support your response.
4. Berk and DeMarzo indicate that “With perfect capital markets, financial transactions neither add nor destroy value, but instead represent a repackaging of risk (and therefore return)”. Outline the general ideas embedded in the Miller and Modigliani propositions I and II and defend them but highlight any noteworthy caveats. Include at least two citations that support your response.

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