You are employed by DD Inc, a semiconductor manufacturer that is about to invest in new projects. Your role in finance department is to help the firm in capital budgeting decisions. You are discussing with your manager about the firms assumptions in project evaluation before considering some new investment opportunities. The companys tax rate is 22 percent. The company uses different discount rates for different projects.

Given the choice, should the firm prefer to use MACRS depreciation or straight-line depreciation? What do you think?

In our capital budgeting, we usually assume that we will recover all the working capital we invested in a project. Is this a reasonable assumption? When might it not be valid?

When is EAC analysis appropriate for comparing two or more projects? Why is this method used? Are there any implicit assumptions required by this method that you find troubling?