Chapter $14$ Discussion Post

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Chapter $14$ continues the theme introduced in Chapter $13-$ decision making. In this chapter we discuss making

decisions about projects that have long$-$term implications $-$ specifically $-$ Capital Budgeting decisions. The methods

we use to solve these types of problems are the Net Present Value $($NPV$)$ method & the Internal Rate of return $($IRR$)$

method. Both methods involve discounting cash flows. Discounting means determining the Present Value of a future

cash flow.

Present Value was introduced in Financial Accounting. If you need a little bit of a refresher $-$ review the appendix to

this chapter. I also have a separate video file reviewing Present Value.

PLEASE NOTE that there is a lot of information in this chapter that we do not cover $-$ so make sure to read the

introduction page in the learning module and the test review to find out the extent of what you need to study.

There are two types of capital budgeting decisions $-$ screening decisions & preference decisions.

What is the difference between the two types of decisions?

Can we use both the NPV method and the IRR method to solve both types?

Why do we decide to do a project if the NPV of the project works out to be zero or a positive number? What does

it mean when the NPV works out to be a negative number?