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Fundamentals of Corporate Finance by Robert Parrino

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9

The Fundamentals of Capital Budgeting

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Learning Objectives

images Discuss why capital budgeting decisions are the most important investment decisions made by a firm's management.

images Explain the benefits of using the net present value (NPV) method to analyze capital expenditure decisions and calculate the NPV for a capital project.

images Describe the strengths and weaknesses of the payback period as a capital expenditure decision-making tool and compute the payback period for a capital project.

images Explain why the accounting rate of return (ARR) is not recommended for use as a capital expenditure decision-making tool.

images Compute the internal rate of return (IRR) for a capital project and discuss the conditions under which the IRR technique and the NPV technique produce different results.

images Explain how the ...

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