1. How are project classifications used in the capital budgeting process?
2. what are three potential flaws with the reqular payback method? Does the discounted payback method correct all three flaws?Explain.
3. Why is the NPV of relatively long-term project(One for which a high percentage of its cash flows occurs in the distance futurs) more sensitive to changes in the WACC than that of a short-term project?
4. What a mutually exclusive project? How should managers rank mutually exclusive projects?
5. If two mutually exclusive projects were being compared, would a high cost of capital favor the longer-term or the shorter-term project?why? if the cost of capital declined, would that lead firms to invest more in longer-term projects or shorts-term project? Would a decline or an increase in the WACC cause change in the IRR ranking of mutually exclusive project? explain.