1. A firm's value-to-book and market-to-book ratios may differ from one for a number of reasons. Discuss how a successful internally funded research and development program would create a situation where the value-to-book and market-to-book ratios differ from one.

2. In what case will using dividends expected to be paid to shareholders yield the same valuation for the firm as using free cash flows expected to be generated by the firm?

3. Differentiate between net cash flow and accounting profit. A firm has net income of $5 million. Assuming that depreciation of $1 million is its only noncash expense, what is the firms net cash flow?