Suggested talking Points

Discuss the four major ways that project cash flow differs from accounting income. $($SLO$11)$

Define the following terms: relevant cash flow, incremental cash flow, sunk cost, opportunity cost. $($SLO$11)$

Identify the three categories to which incremental cash flows can be classified. $($SLO$11)$

Explain three reasons why corporate risk is important even if a firm's stockholders are well diversified. $($SLO$11)$

Identify two reasons why stand$-$alone risk is important. $($SLO$11)$

Explain why capital structure policy involves a trade$-$off between risk and return. $($SLO$12)$

Distinguish between a firm$$s business risk and its financial risk. $($SLO$12)$

Define financial leverage.$($SLO$12)$

Explain what is a firm$$s optimal capital structure. $($SLO$12)$

Specify the effect of financial leverage on beta using the Hamada equation $($SLO$12)$

List the assumptions under which Modigliani and Miller proved that a firm$$s value is unaffected by its capital structure. $($SLO$12)$