1. Cash Flows and Present Value:

a) Briefly describe the consistency principle in Discounted Cash Flows Model. Discuss its application in evaluating a firms different sources of capital (debt, equity and firm). [8 Marks]

b) Discuss the specialty of FCF and WACC in terms of the consistency principle.

2. Capital Structure Question

a) Briefly define the term of Business Operational Risk and discuss its major risk elements or components (what activities are related to the operational risk) [6 Marks]

b) Briefly define the Financial risk and describe the basic financial risk under the perfect market condition (no tax, no transaction costs, no information effects and no bankruptcy costs) [5 Marks]

c) List and explain three types of financial risks additional to the basic form mentioned in the question b) above