Capital Budgeting

What is capital budgeting? Compare the advantages and disadvantages of various capital budgeting techniques. Do you think NPV is the best decision criterion and it can overcome the problems inherent in other methods? Justify your answer.

True or false? One way to address risk for a capital budgeting problem is to conduct scenario analysis

The internal rate of return (IRR) of a project must be compared to its Blank______ in order to determine the acceptability of the project. Multiple choice question. real rate of return required rate of return profitability index accounting rate of return

Which of the following is not a method for incorporating risk analysis into capital budgeting?   a. Positive/Negative analysis   b. Monte Carlo simulations   c. Scenario analysis   d. Sensitivity analysis   e. Decision tree models

Which of the following decision measures should capital budgeting decision makers consider? Select one: a. discounted payback b. NPV c. IRR d. MIRR e. Although NPV is considered the most important method in the decision process, the other measures can provide different relevant information that is useful to the process and thus should be used when appropriate

You can come across different situations in your life where the concepts from capital budgeting will help you in evaluating the situation and making calculated decisions. Consider the following situation: The following table contains five definitions or concepts. Identify the term that best corresponds to the concept or definition given. Concept or Definition Term A computer-generated probability simulation of the most likely outcome, given a set of probable future events      The most likely scenario in a capital budgeting analysis      A measure of the project’s effect on the firm’s earnings variability      The risk that is measured by the project’s beta coefficient        A successful sushi chain in Hong Kong spent $500,000 to conduct a study on whether to open a location in the United States. The study showed that the best place for the company to open its first location would be in Chicago. When conducting its capital budgeting analysis, how should…

All parts are under one questions and per your policy therefore all parts can be answered.  1. Concepts used in cash flow estimation and risk analysis You can come across different situations in your life where the concepts from capital budgeting will help you in evaluating the situation and making calculated decisions. Consider the following situation: The following table contains five definitions or concepts. Identify the term that best corresponds to the concept or definition given.   A. Concept or Definition Term A computer-generated probability simulation of the most likely outcome, given a set of probable future events      The most likely scenario in a capital budgeting analysis      A measure of the project’s effect on the firm’s earnings variability      A method to determine market risk by using the betas of single-product companies in a given industry      The risk that is measured by the project’s beta coefficient        B. Marston…

Discuss the notions of conventional and nonconventional cash flows in capital budgeting. Which investment evaluation criteria would you use for unconventional cash flows and why? Provide a fictitious unconventional cash flow example and apply the payback period, NPV, IRR, MIRR, and PI methods to your example. Interpret the results.

Explain the concept of sensitivity analysis as determined by NPV Breakeven sensitivity.  How is it measured and what insights does it provide about the risk of a project?   Goal seek can be used to evaluate the NPV breakeven of an input.  What needs to happen next in order to evaluate and interpret the results?  How do we know whether the results suggest that an input adds a little, or a lot, of risk relative to a project?

A preference decision in capital budgeting: O is concerned with whether a project clears the minimum required rate of return hurdle. comes before the screening decision. O is concerned with determining which of several acceptable alternatives is best. O involves using market research to determine customers' preferences.

Describe and explain the significance of each of the following: payback period, internal rate of return (IRR), modified internal rate of return (MIRR), net present value (NPV), and profitability index (PI). Explain. Provide examples for better clarity. Discuss the notions of conventional and nonconventional cash flows in capital budgeting. Which investment evaluation criteria would you use for unconventional cash flows and why? Provide a fictitious unconventional cash flow example and apply the payback period, NPV, IRR, MIRR, and PI methods to your example. Interpret the results.

Investment projects can be evaluated using static or dynamic methods. Dynamic valuation methods include Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Time. If we must choose one of the 3 investment evaluation methods. What is the best method or the one that provides us with the most information for making decisions and why?

Which of the following statements is CORRECT? a. The NPV profile graph for a normal project will generally have a positive (upward) slope as the life of the project increases. b. An NPV profile graph shows how a project's payback varies as the cost of capital changes. O c. An NPV profile graph is designed to give decision makers an idea about how a project's contribution to the firm's value varies with the cost of capital. d. An NPV profile graph is designed to give decision makers an idea about how a project's risk varies with its life. e. We cannot draw a project's NPV profile unless we know the appropriate WACC for use in evaluating the project's NPV.

Net Present Value Method Net present value (NPV) is one method that can be used to evaluate the financial viability of potential projects. It determines the present value of all future cash flows associated with potential projects and measures this against the cost of the project. To use net present value, a required rate of return must be defined. The required rate of return is the minimum -v acceptable rate of return that an investment must yield for it to make sense economically. Managers often choose a required rate of return above their cost of capital to ensure that the inherent uncertainties surrounding future cash flows is addressed. This can be risky, however, as it biases the process toward short-term projects. If the NPV is positive, then the project should be accepted - V ; if it is negative, then the project should be rejected V. Let's look at a net present value example using the present value of an ordinary annuity table. The company has a project with a 5-year life that…

Comparing Investment Criteria. Define each of the following investment rules and discuss any potential shortcomings of each. In your definition, state the criterion for accepting or rejecting independent projects under each rule. a. Payback period. b. Internal rate of return. c. Profitability index. d. Net present value.

1. Concepts used in cash flow estimation and risk analysis You can come across different situations in your life where the concepts from capital budgeting will help you in evaluating the situation and making calculated decisions. Consider the following situation: The following table contains five definitions or concepts. Identify the term that best corresponds to the concept or definition given. Concept or Definition Term The specific cash flows that should be considered in a capital budgeting decision      A cost that has been incurred and may be related to a project but should not be part of the decision to accept or reject a project      The cash flows that the asset or project is expected to generate over its life      The effects on other parts of the firm      The cost of not choosing another mutually exclusive project by accepting a particular project        A successful sushi chain in Hong Kong spent $500,000 to conduct a study on whether to open…

Please answer with full explaination   The capital budgeting decision depends in part on the    A. availability of funds.    B. relationships among proposed projects    C. risk associated with a particular project    D. all of these answers are correct