1. (Choose ONE only) Explain clearly and completely why it is difficult to use actual numbers to find a precise optimal capital structure for a given firm OR Explain clearly and completely all the reasons why depreciation expense needs to be considered in capital budgeting cash flow estimation even though depreciating expense is itself not a cash flow.

2. Firm J is about to enter a growing but risky market with a new line of products. A significant amount of the stock in Firm J is held by its managers. Firm J has also recently borrowed a large amount of money to invest in a new line of automated equipment. The management of Firm J is considering announcing a permanent cut in the dividend next quarter. 1) Discuss fully the pros and cons of this announcement. 2) List three important pieces of information you have not been given that you would like to have in order to make a more informed decision. Explain carefully why this information is important.