Smith Inc. is a public company but is tightly controlled by Joe Smith. Mr. Smith is quite confident about his ability to evaluate investments in all aspects of the business. The situation at Smith Inc. is quite different from that at Jones Inc., although they share a similar line of business. Jones Inc. has a much less powerful CEO, Fred Jones, who delegates much more control to the firms divisional heads. Mr. Fred meets with the divisional heads to make a capital allocation choices as a group.

1. Discuss how and why Smith Inc. and Jones Inc. might have different approaches for determining the discount rates used to evaluate their projects.

2. Discuss three sources of difference between Cash provided by operations and Free Cash Flows.