CHAPTER 10 hw - Akbar Bhojani 105882655 Chapter 10 1 We...

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Akbar Bhojani 105882655 Chapter 10 1) We calculate the payback period for a proposed capital budgeting project by  adding up the project’s projected positive cash flows, one period at a time, until  the sum, equals the amount of the projects initial investment.  This number of  time periods is the number it takes for the positive cash flows to equal the  amount of the initial investment is referred  to as the payback period. The major  problem with the payback method is that it doesn’t consider cash flows that occur  after the payback period.   2) The net present value of a capital budgeting project is the dollar amount of the  change in the value of the firm as a result of undertaking the project.      3) The advantages of the IRR method are it focuses on all cash flows assoicaiated  with the project.  The IRR adjust for the time value of money.  The IRR describes  projects in terms of the rate of return they earn, which makes it easy to compare  them with other investments.  The disadvantages of the IRR method are the IRR  is a percentage number which causes it not to show how much the value of the 
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This note was uploaded on 05/11/2008 for the course BUS 330 taught by Professor Nugent during the Spring '08 term at SUNY Stony Brook.

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CHAPTER 10 hw - Akbar Bhojani 105882655 Chapter 10 1 We...

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