What is the net present value investment criterion
What is the net present value investment criterion
Subject: Business   / Finance
Question
1. What is the net present value investment criterion? What are its benefits and deficiencies? How does the discount rate used affect the net present value calculation? Based on the NPV, which project would be selected at a discount rate of 10%?
2. What is the internal rate of return investment criterion? What are its benefits and deficiencies? Based on the IRR, which project would be selected?
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3. Assume the cost of capital is 10% and consider the mutually exclusive projects 7 and 8. Based on the NPV which project should be selected? Based on the IRR, which project should be chosen? How do you reconcile the two decisions?
4. What is the return on investment selection criterion? What are its benefits and deficiencies? Based on the ROI, which project would be selected?
5. What is the payback investment criterion? What are its benefits and deficiencies? Based on the payback, which project would be selected?
6. Consider the fact that the projects have unequal lives. What methodology can be used to compare projects of unequal length? What is the equivalent annuity investment selection criterion? Based on the equivalent annuity, which project would be selected?