Capital Budgeting
For each of the following assignment questions, in approximately 300 words, submit your analytical response.
Q.1. From a corporate capital budgeting perspective, there are four major evaluation criteria , as follows:
1) Net Present Value
2) Internal Rate of Return
3) Modified Internal Rate of Return
4) Payback period
Discuss the advantages and limitations of each of the above. If there is one you prefer, state the reasons for your choice.
Q.2. One disadvantage of IRR is that for a project, there may be more than one IRR. How would you choose and which one?
Q.3. What are the limitations of using NPV for non-corporate investment projects. Why does the World Bank prefer IRR over NPV for its funded projects?
Q.4. For some multiple capital budgeting projects there is a cross-over rate.
What are its limitations and can they be overcome by using more than one investment criteria.
