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1. Describe the Net Present Value (NPV) method for determining a capital budgeting project's desirability. What is the acceptance benchmark when using NPV? What are the strengths and weaknesses of the NPV method?

2. What is the payback period statistic? What is the acceptance benchmark when using the payback period statistic? What problem of the PB period method is corrected by using the discounted PB period method?
• The payback period statistic is …”a type of recovery period for the initial investment” (Cornett, Adair, & Nofsinger, 2014, p. 306). Payback is computed by keeping …”a running subtotal of the cumulative sum of the cash flows up to the point that this sum exactly offsets the initial investment” (Cornett, Adair, & Nofsinger, 2014, p. 306).


3. Describe the Internal Rate of Return (IRR) method for determining a capital budgeting project's desirability. What is the acceptance benchmark when using IRR? How are NPV and IRR methods similar and how are they different?

4. Describe the Modified Internal Rate of Return (MIRR) method for determining a capital budgeting project's desirability. What are MIRR's strengths and weaknesses? What is the difference in the reinvestment rate assumption that distinguishes the MIRR from the IRR?

5. Compute the NPV statistic for Project Y and tell [advise] whether the firm should accept or reject the project with the cash flows shown in the chart if the appropriate cost of capital is 12 percent. How do decreases in the cost of capital lead to an increase in the number of approved projects?
Project Y

Time 0 1 2 3 4
Cash Flow -$11,000 $3,350 $4,180 $1,520 $2,000

6. Compute the payback period statistic for Project B and decide whether the firm should accept or reject the project with the cash flows shown in the chart if the maximum allowable payback is three years. Explain why, if the discounted

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