[Discussion] - 4

[Discussion] - 4 - Chapter 6: MATCH THE FOLLOWING 3...

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Chapter 5: NPV and Other Rules Under what cases does payback perform poorly? (Circle all that apply) Both of these cases don’t work. You should be careful about using payback because it does not consider timing of subsequent cash flows after the payback period. In which cases would you use IRR? (Circle all that apply) You would only use IRR in the leftmost and rightmost cases, since the middle two may cause aberrations such as multiple IRR’s. Under what cases does IRR perform poorly? (Circle all that apply) IRR performs poorly in not accounting for scale (such as the rightmost box) and it doesn’t always yield the same decision as a NPV analysis (such as in the leftmost box)
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Unformatted text preview: Chapter 6: MATCH THE FOLLOWING 3 Opportunity Costs (1) A decision that was previously made 1 Sunk Costs (2) Cuts away at sales of other items 2 Erosion (3) What you sacrificed in order to make a decision 4 Synergy (4) Promotes the sale of other items 6 Inflation (5) The same basket of goods costs less 5 Deflation (6) The same basket of goods costs more 7 Consumer Price Index (7) A basket of goods 1 1.50 100 101 Against Against 1 1 Against 1 Against Additional Things to Review Profitability index Please read the pros/cons of the different analysis methods in the book. Look up the operating cash flow definitions and understand how to apply them to problems....
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[Discussion] - 4 - Chapter 6: MATCH THE FOLLOWING 3...

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