1. Using two studies (one by DeBondt and Thaler (the law of small numbers) and the other by Barberis, Vishny and Shleifer (conservatism) how should you invest in the short-run and the longer-run? Explain why you would use the strategies you describe above.
2. How much will a firm need in cash flow before tax and interest to satify debtholder and equtiyholder if the tax is 40%, there is 10 million in common stock required a 12%, and 6 milliion in bond required an 8% return? Use WACC to calulate the problem.