1. How does an owner-manager of a non-financial firm deal with risk? Answer the question specifically in relation to each of the following: a) risk as sensitivity to potential deviation from forecast values of variables that make up Net Present Value (cashflows, project life, initial expenditure etc) (b) risk in respect of the financial return or NPV that should be controlled for by correct choice of a discount rate (c) the same risk as in (b) but discussing how it might be dealt with by certainty equivalent calculations (1000 words approx.)
2. Discuss how your company should choose a discount rate were it to be taken over by a diversified owner and explain what theory lies behind that method. (1000 words approx.)
3. Discuss in your own words the views that are contained in readings (1) and (2) and comment how they support (or not) what you have said in 2. (1000 words approx.)
