1. Suppose that a firm must choose between two mutually exclusive projects, both of which have negative NPVs. Explain how a firm can legitimately choose among two such projects.

2. Why is it important to have accurate projections of cash flows for potential capital investments?

3. Describe why it is important for a manager to conduct a careful review of the assumptions and methods used in forecasting cash flows.

4. What are the principal tax implications that should be considered in Year 0?

5. Explain why the MACRS method of recognizing depreciation is better than the straight-line method.

6. What is the half-year convention? What is the effect of this convention on the length of time it actually takes to write off the cost of a depreciable asset?

7. Explain the important factors to consider for capital investment in the advanced manufacturing environment.

8. Explain what sensitivity analysis is. How can it help in capital budgeting decisions?