Intro & key concepts

5 important questions on Intro & key concepts

What is a a capital budget list

A list of all investments that a firm plans to make during the next period

What are common methods to decide which projects to select

NPV
IRR
payback period
profitability index

When may the IRR and NPV be in conflict?

Delayed investments
Multiple IRRs
Nonexistent IRR
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What are the biggest differences between NPV and IRR

Outcome --> NPV = dollar ; IRR = %
Purpose --> NPV = project surplus ; IRR = breakeven cashflow
Decision support --> NPV = foundation ; IRR = not much (% does not tell investor how much will be made)

What are the issues with payback period?

Ignores cost of capital & time value of money
ignores CF after Payback period

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