1. this chapter you will study capital budgeting decisions. Explain what you will learn.
2. Identify and describe three typical cash outflows as described in the text. What could be unique about the first cash outflow?
3. Identify and describe three typical cash inflows as described in the text.
4. The most important capital budgeting technique is based upon the concept of time value of money. Describe it.
5. Explain the payback method for evaluating a capital budgeting project. What information does it provide the manager?
6. What are criticisms of the payback method?
7. Direct your attention to the extended example of payback. How does the Goodtime Fun Centers, Inc example differ to the previous examples?
8. Most likely, a project's annual net cash inflows won't be the same every year. Therefore, how is the payback period determined?
9. Explain the net present value method of evaluating an investment project.
10. Explain the two important assumptions of net present value analysis.
11. Explain the steps necessary to determine whether an investment is desirable using the NPV method.
12. Exhibits 14.3 and 14.4 (13.3 and 13.4) highlight two methods at determining NPV. Explain in detail how they differ.
13. Now that you understand how to compute NPV it is time to a decision. Explain the decision rule for interpreting the NPV.
14. Explain the concept of minimum required rate of return.
15. Explain how the NPV method provides for the return of the original project investment. Use the Carver Hospital example for reference.
16. Discuss the extended example of the NPV method (example e). Specifically, what makes it unique compared to previous examples (c and d).
17. Define the internal rate of return (IRR) method and how its computed.
18. Explain the relationship between NPV and IRR.
19. Compare the NPV and IRR methods.
20. Explain the total-cost approach to project selection. Use example G as a guide.
21. The chapter highlights two points in applying the total-cost approach. Describe them.
22. Describe a least-cost decision. What makes it unique? What type of examples can you think of?
23. Discuss preference decisions and their purpose.
24. If a company uses the IRR method to evaluate several projects how will it rank those projects?
25. If a company uses the NPV method to evaluate projects what technique will it use to rank those investments? Why must it use this method rather than compare NPVs?