1.) What is operating leverage? How, if at all, is it similar to financialleverage? If a firm has high operating leverage would you expect it tohave high or low financial leverage? Explain your reasoning.

2.) Why might it make sense for a mature, slow-growth company to havea high debt ratio?

3.) FARO Technologies, whose products include portable 3D measure-ment equipment, recently had 17 million shares outstanding tradingat $42 a share. Suppose the company announces its intention to raise$200 million by selling new shares.a.What do market signaling studies suggest will happen to FAROsstock price on the announcement date? Why?b.How large a gain or loss in aggregate dollar terms do market sig-naling studies suggest existing FARO shareholders will experienceon the announcement date?c.What percentage of the value of FAROs existing equity prior tothe announcement is this expected gain or loss?d.At what price should FARO expect its existing shares to sell imme-diately after the announcement?