Problem 1: Explain the reasoning behind the focus on cash flows rather than accounting profits in making our capital-budgeting decisions. Why are we interested only in incremental cash flows rather than total cash flows?
Problem 2: If depreciation is not a cash flow item, why does it affect the level of cash flows from a project in any way?
Problem 3: What makes up a company's capital structure? Explain the purpose of determining the weighted average cost of capital for a company.