1) A project has a net present value of zero. What does this mean to the company?
2) Describe two disadvantages of the payback method for capital budgeting decisions?
3) When comparing mutually exclusive projects, the NPV method is used to ___________.
4) You work for a company whose primary long term financial goal is to undertake projects that maximize company value. You have been asked to provide a recommendation with respect to selecting one of two mutually exclusive projects. The first project has an NPV of $150K and an IRR of 10%. The second has an NPV of $120K and an IRR of $12.5%. Which project should you recommend and why? (Show all work)
5) Your company has identified several independent projects that will add value to the company. Unfortunately, the company has an insufficient capital budget to undertake all of the projects. What general recommendation would you make for selecting the appropriate projects?