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  • Created by: diabianca
  • Created on: 25-04-14 17:02
Steps in solving for MCC Sched
1) WEIGHTS 2) Ks & BPs (BPd=debt amt/weight; BPe=income*(1-div%)/weight)
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strengths of the payback approach in capital budgeting
1) Easy to compute and communicate (2)May be used to consider project’s risk or liquidity
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weaknesses of the payback approach in capital budgeting
1) Does not consider cash flows beyond payback period (2) Ignores time value of money (3) Provides no objective criterion for decision making
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what is the opportunity cost of the unused funds?
amount of unused funds multiplied by the firm’s cost of capital.
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When is it possible for the net present value and internal rate of return approaches to give conflicting rankings of mutually exclusive projects?
when the two projects being considered are significantly different in size or have very different patterns of cash flows.
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Other cards in this set

Card 2

Front

strengths of the payback approach in capital budgeting

Back

1) Easy to compute and communicate (2)May be used to consider project’s risk or liquidity

Card 3

Front

weaknesses of the payback approach in capital budgeting

Back

Preview of the front of card 3

Card 4

Front

what is the opportunity cost of the unused funds?

Back

Preview of the front of card 4

Card 5

Front

When is it possible for the net present value and internal rate of return approaches to give conflicting rankings of mutually exclusive projects?

Back

Preview of the front of card 5

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