In this chapter we discuss making decisions about projects that have long-term implications - specifically - Capital Budgeting decisions. The methods we use to solve these types of problems are the Net Present Value (NPV) method & the Internal Rate of return (IRR) method. Both methods involve discounting cash flows. Discounting means determining the Present Value of a future cash flow.

There are two types of capital budgeting decisions - screening decisions & preference decisions.

1) What is the difference between the two types of decisions?

2) Can we use both the NPV method and the IRR method to solve both types?

3) Why do we decide to do a project if the NPV of the project works out to be zero or a positive number? What does it mean when the NPV works out to be a negative number?