Learning Goals

Chapter 9
Capital-Budgeting and Decision Criteria

I. Discuss the difficulty of finding profitable projects in competitive markets.

II. Determine whether a new project should be accepted using

1. PAYBACK PERIOD
2. NET PRESENT VALUE
3. PROFITABILITY INDEX
4. INTERNAL RATE OF RETURN
5. MULTIPLE INTERNAL RATE OF RETURN

Chapter 10
Cash Flow and Other Topics in Capital Budgeting
I. Understand the key motives for capital expenditure and the step in the capital
budgeting process.

II. Define basic capital budgeting terminology

III. Discuss relevant cash flow, expansion vs. replacement decision, sunk cost and
opportunity cost and capital budgeting.

Chapter 11
Capital Budgeting and Risk Analysis

I. Explain what the appropriate measure of risk is for capital-budgeting purposes.

II. Determine the acceptability of a new project using both the certainty equivalent and
risk-adjusted discount rate methods of adjusting for risk.

III. Explain the use of simulation and probability trees for imitating the performance
under evaluation.