1. What concept must be considered when looking at cash flows over several years for a long-term investment? Explain.
2. What is meant by the term present value?
3. Describe the three steps required to evaluate investments using the net present value method.
4. How do most firms establish the required rate of return used to calculate the net present value?
5. What is meant by the term internal rate of return? Explain the IRR decision rule?
6. What is the payback method, and why do managers use this method?