-1.How and why do you discount cash flows? -2. What is the NPV Rule? -3. How do you do sensitivity analysis one variable at a time? -4. How do you do sensitivity analysis with a number of variables simultaneously (monte-carlo)? -5. What happens with sensitivity analysis if a number of variables are correlated? -6. What is the IRR rule? Why is it sensible? - 7. If cash flows are constant what is the formula for their infinite sum? Example? - 8. If cash flows are growing at a constant rate what is the infinite sum? Example? - 9. If cash flows are constant and last for N years how do you find the sum using tables in Appendix D? - 10. How do you use the tables in the textbook Pike et al Appendix D so as to confirm, when cash flows are constant, that the IRR is in a given range? - 11. What is horizon value and how is it calculated? - 12. Why is diversification useful? - 13. What is the variance of the average ( 50% each) of two stocks when they are not correlated? And with different weights? - 14. Does it make any difference if correlation of stocks is positive, negative or zero? - 15. What is the risk-free rate? - 16. How does a small family firm decide on its discount rate?. (hint: opportunity cost; risk attitude). - 17. Is the practice of adding a premium to the risk-free rate to get the "risk-adjusted discount rate" acceptable? - 18. What are certainty equivalent cash flows? - 19. Are certainty equivalent cash flows normally above or below the expected value of cash flows and why? - 20. Is discounting the cash flows by the risk-adjusted discount rate the same as discounting the certainty equivalent cash flows by the risk-free rate? - 21. Why can the family firm risk-adjusted discount rate not be used for a firm that is owned by outside shareholders? -22. What principle explains the choice of discount rate for a widely owned firm? - 23. How much risk can you avoid by enough diversification - can you avoid all risk