The Global Chemical Company (GCC) uses the following criteria to make capital investment decisions: 1. Effect on
Question:
1. Effect on earnings per share (must be positive)
2. Payback period (must be less than six years)
3. Internal rate of return (must be at least 12 percent)
4. Net present value (must be positive at a 12 percent discount rate)
a. What are the advantages and disadvantages of each of these measures?
b. Why do you think GCC uses all of these measures rather than just one of them?
Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Internal Rate of Return
Internal Rate of Return of IRR is a capital budgeting tool that is used to assess the viability of an investment opportunity. IRR is the true rate of return that a project is capable of generating. It is a metric that tells you about the investment... Payback Period
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...
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a Impact on earnings per share EPS is an accounting measure of performance Its main drawbacks are that it ignores capital investment required for the ...View the full answer
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Related Book For 
Finance for Executives Managing for Value Creation
ISBN: 978-0538751346
4th edition
Authors: Gabriel Hawawini, Claude Viallet
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