Accounting

[QUESTION] Why does the payback period bias the process of asset selection toward short-lived assets?

[QUESTION] Why does the net present value method favor larger projects over smaller ones when used to choose between mutually exclusive projects? Is this a problem?

[QUESTION] Contrast the internal rate of return method of project evaluation and selection with the net present value method. Why might these two discounted cash flow techniques lead to conflicts in project rankings?

[QUESTION] Although it is conceptually unsound, the payback period is very popular in business as a criterion for assigning priorities to investment projects. Why is it unsound, and why is it popular?

[QUESTION] What are mutually exclusive investment projects? What is a dependent project?

[QUESTION] Is the economic efficiency of a country enhanced by the use of modern capital budgeting techniques? Why?

[QUESTION] If capital rationing is not optimal, why would any company use it?

[QUESTION] The internal rate of return method implies that intermediate cash flows are reinvested at the internal rate of return. Under what circumstances is this assumption likely to lead to a seriously biased measure of the economic return from the project?

[QUESTION] [Problem 13.2] In Problem 1, what criticisms may be offered against the payback method?

[QUESTION] [Problem 13.3] The following are exercises on internal rates of return: a. An investment of $1,000 today will return $2,000 at the end of 10 years. What is its internal rate of return? b. An investment of $1,000 will return $500 at the end of each of the next 3 years. What is its internal rate of return? c. An investment of $1,000 today will return $900 at the end of 1 year, $500 at the end of 2 years, and $100 at the end of 3 years. What is its internal rate of return? d. An investme...