### Performing risk analysis on potential investment projects

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1. Name at least two reasons for performing a risk analysis on potential investment projects.

2. What are value drivers and how are they important in the analysis of project risk?

3. Describe scenario analysis and contrast it with sensitivity analysis.

4. How is simulation analysis similar to sensitivity analysis?

5. Explain the concepts of fixed and variable costs. Which is typically an indirect cost and which is typically a direct cost?

6. What is operating leverage?

7. What are real options and how do they relate to the notion of managerial flexibility?

8. How is an investor's required return related to the firm's cost of capital?

9. Should book or market values be used to determine the weights used in calculating the WACC? Explain.

10. Describe two approaches that can be taken to estimate the cost of common equity.

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