1. Project Evaluation --Cash Flows question:

Adams Video is considering whether to make an investment in a new type of technology. The following factors are considered in the initial discussion:i). The company has already spent $3 million researching the technology; ii). The new technology will affect the cash flows produced by the other operations of the company; iii). If the investment is not made, then the company will be able to sell one of its laboratories for $2 million.

a) Which of the above factors should the company consider when it decides whether to undertake the investment? [4 Marks]

b) Explain why for each of the factors. [6 Marks]

c) Explain why we must use incremental cash flows in project evaluation.

2. Firm Value with FCF and WACC:

a) Describe the FCF definition (in terms of its underlying object or asset) and its practical application; [8 Marks]

b) Discuss the special function of WACC.

3. Corporate Governance question:

a) Provide a simple definition of Corporate Governance (in traditional Corporate Finance terms) in your own words; [8 Marks]

b) Discuss the possible relation between CEO compensation and company performance in terms of corporate risk and average equity return.

4. Capital Structure Question:

a) Briefly define the terms: Business Risk and Financial risk; [8 Marks]

b) Describe how the business risk and financial risk could be included in the value of WACC, which is calculated with the formula:

WACC = Wd * Rd * (1-Tc)+We * Re