1. What is operating leverage and how does it influence a project?
2. What are the two methods for estimating the debit cost of capital, and what do you do when there is default risk? Explain the circumstances in which you would use each method.
3. Why would an investor want to beat the market versus hold the market? Discuss the strategies for each and their dependence on an investors information and trading skills.
4. Do uninformed investors trade too much? Discuss how uninformed investors use the CAPM and how their behaviors deviate.

1. What additional assumptions (to the main three) are important when applying the Capital Asset Pricing Model and what are the underlying strengths and weaknesses of this application? Discuss the reliability of the model and give examples in your explanation.
2. Discuss the Arbitrage Pricing Theory the Fama-French factor and the preciseness of techniques used to calculate cost of capital. How does one decide on which technique is best to use?