Discussion: "Capital Budgeting and Risk Analysis"

Please respond to the following:

• From the e-Activity, analyze the reasons why the short-term project that you have chosen might be ranked higher under the NPV criterion if the cost of capital is high, while the long-term project might be deemed better if the cost of capital is low. Determine whether or not changes in the cost of capital could ever cause a change in the internal rate of return (IRR) ranking of two (2) projects.

• From the scenario, take a position for or against TFC's decision to expand to the West Coast. Provide a rationale for your response in which you cite at least two capital budgeting techniques (e.g., NPV, IRR, Payback Period, etc.) that you used to arrive at your decision.

As before, answer any two of the following:

1. What are the characteristics of fixed-income (debt and preferred stock) securities?
2. What are the major steps involved in a capital budgeting decision?
3. How do you calculate the present value of a stream of future cash flows?
4. Who are some of the users of Preferred Stock?
5. What is the net present value (NPV) rule and how to apply it to investment decisions? (also in Chapter 5)
6. Why is a project's NPV a measure of the value it creates?
7. How do you use the NPV rule to choose between projects of different sizes or different useful lives?
8. How can the flexibility of a project can be described with the help of managerial options?