25.5 - Techniques of Capital Budgeting
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Practice Questions
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What is the Payback Period?
💡 Hint: It relates to how soon the investment can start generating profits.
What is NPV?
💡 Hint: Think of it as measuring profits in today’s money.
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Interactive Quizzes
Quick quizzes to reinforce your learning
What does Payback Period measure?
💡 Hint: It relates to how soon you can start making real profits.
True or False: NPV considers the time value of money.
💡 Hint: Remember how future values diminish with time.
2 more questions available
Challenge Problems
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A company is analyzing a project requiring an initial investment of $250,000. It will generate returns of $75,000 per year for five years. Calculate NPV, assuming a discount rate of 10%. Discuss implications if the NPV is negative.
💡 Hint: Remember to discount future cash flows before making your decision.
Describe a scenario where using the Payback Period could lead to poor investment decisions. Provide alternatives that could have been better.
💡 Hint: Think about long-term versus short-term gains.
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