财务管理课后答案 托斯 chapter 12.docVIP

Chapter 12 Discussion Questions 12-1. What are the important administrative considerations in the capital budgeting process? Important administrative considerations relate to: the search for and discovery of investment opportunities, the collection of data, the evaluation of projects, and the reevaluation of prior decisions. 12-2. Why does capital budgeting rely on analysis of cash flows rather than on net income? Cash flow rather than net income is used in capital budgeting analysis because the primary concern is with the amount of actual dollars generated. For example, depreciation is subtracted out in arriving at net income, but this non-cash deduction should be added back in to determine cash flow or actual dollars generated. 12-3. What are the weaknesses of the payback method? The weaknesses of the payback method are: There is no consideration of inflows after payback is reached. The concept fails to consider the time value of money. 12-4. What is normally used as the discount rate in the net present value method? The cost of capital as determined in Chapter 11. 12-5. What does the term mutually exclusive investments mean? The selection of one investment precludes the selection of other alternative investments because the investments compete with one another. For example if a company is going to build one new plant and is considering 5 cities, one city will win and the others will lose. 12-6. How does the modified internal rate of return include concepts from both the traditional internal rate of return and the net present value methods? The modified internal rate of return calls for the determination of the interest rate that equates future inflows to the investment as does the traditional internal rate or return. However, it incorporates the reinvestment rate assumption of the net present value method. That is that inflows are reinvested at the cost of capital.  12-7. If a corporation has projects that will earn more than t