Business & Finance homework help. Chapter 10 assignment:
Answer all the following questions in full sentences:
- Define capital expenditure?
- Define operating expenditure?
- What are the five steps of the capital budgeting process and explain each step?
- Define payback period?
- What are the decision criteria for payback period? What are the weaknesses in using payback period?
- What are the decision criteria for NPV? How are they related to the firm’s market value?
- Explain the similarities and differences between NPV, PI, EVA?
- What are the decision criteria for IRR? How are they related to a firm’s market value?
- Do the NPV and IRR always agree with respect to accept-reject decisions? With respect to ranking decisions? Explain
- Define ranking approach?
- Fitch Industries is in the process of choosing the better of two equal-risk, mutually exclusive capital expenditure projects, M and N. The relevant cash flows for each project are shown in the following table. The firm’s cost of capital is 14%.
| Project M | Project N | |
| Initial Investment (CF) | $28,000 | $27,000 |
| Year (t) | Cash inflows (CFt) | |
| 1 | $10,000 | $11,000 |
| 2 | $10,000 | $10,000 |
| 3 | $10,000 | $9,000 |
| 4 | $10,000 | $8,000 |
- Calculate each projects payback period
- Calculate the net present value (NPV) for each project
