Things to Know for Exam 4 Strong recommendation: READ THE TEXT AT LEAST TWICE AND BEGIN TEST PREPARATION CHAPTER 9 What capital budgeting is. Definitions of popular capital budgeting technique: NPV, IRR, and Payback period. Decision making rules based on each capital budgeting technique. What should be your choice if you have positive NPVs for multiple potential projects when your choice is mutually exclusive ? What does the zero NPV mean? What kind of information does the IRR give? What are the advantages and disadvantages of the payback period? What are the advantages and disadvantages of the IRR? What should you use as your decision making tool when you have a conflict between IRR and NPV, i.e., when IRR and NPV do not agree when it comes to your best choice? What is profitability index? How would you interpret it? What is NPV profile? What is crossover point? Be able to construct an NPV profile and also to explain project ranking based on
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