IRR = Payback- COST of CAPITAL (WACC) or DISCOUNT RATE OF THE PROJECT = 10% Q#1 Would you accept the project based on NPV, IRR? Would you accept the project based on Payback rule if project cut-off period is 3 years? Q#2 SENSITIVITY and SCENARIO ANALYS. Capital Budgeting (Investment) Decisions Estimate NPV, IRR and Payback Period of the project if Marginal Corporate Tax is reduced to 20%, would you accept or reject the project? Assume Straight-Line Depreciation. Estimate NPV, IRR and Payback Period of the project if Equipment is fully deprecated in first year and tax rate is reduced to 20%, would you accept or reject the project? As a CFO of the firm, which of the above two scenario (a) or (b) would you choose? Why? Q#3 Q#4 How would you explain to your CEO what NPV means? What are advantages and disadvantages of using only Payback method? 5 What are advantages and disadvantages of using NPV versus IRR