Buying a lottery ticket. Buying fire insurance for your home Backing up your computer a. b. c. pr 10. What causes the slope of the security market line to become steeper? Capital Budgeting What are the 2 main criticisms of Payback as a capital budgeting technique? 2. 1. In the case of independent projects, would NPV and IRR ever lead to different decisions? 3. For mutually exclusive projects, if NPV prefers project A and IRR prefers project B, which should you accept? Why? 4. Which capital budgeting technique is subject to the "magnitude" issue? What is the "magnitude" ssue? 5. What is the main advantage of the Modified Internal Rate of Return (MIRR) over the IRR? 6. What are the accept rules for NPV and IRR? 7. Why is it a problem to have more than 1 sign change in our cash flows? Cost of Capital What are the 2 main methods for determining the Cost of equity? 2. 1. How can one find the before tax cost of debt? Which cost used in the Weighted Average Cost of Capital needs to be multiplied by (1-T)2 4. 3. When calculating WACC, which capital is excluded and why? Stocks 1. What is the preemptive right associated with a stock? What is the role of the stockholders, board ofdirectors, and the management team