1. What are the four capital budgeting decision criteria? Explain.
2. What are three potential problems with the IRR? Given these flaws, why should you know the IRR method?
3. How can we account for risk under each of the three methods: PP, IRR, and NPV?
4. Consider a situation where a firm carefully performs capital budgeting analysis and selects a project with a high, positive NPV. Three years later, the project is terminated early and the company has lost significant money on the project. Does this mean that their capital budgeting process is flawed? Explain.
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