The chapter talks about the four capital budgeting methods; the net present value method, the internal rate of return method, the payback method and the accounting rate of return method. For each of the methods, what is your understanding of how cash flows are used as it relates to evaluating investment opportunities?
How important is the choice of discount rate in making capital budgeting decisions? What types of purchases would be considered capital investments? Why is it important to consider both cash inflows and outflows, along with their timing, to make good capital investment decisions?
Suppose you are a manger and have prepared a proposal to install solar panels to provide lightning for the office. The payback period for the project is longer than the company's payback period and the project's net present value is slightly negative. What arguments could you give to support accepting the investment in the sustainability project?