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Principles of Finance

Review Questions

Principles of FinanceReview Questions
1 .
Describe the disadvantages of using the payback period to evaluate a project.
2 .
Explain why a company would want to accept a project with a positive NPV and reject a project with a negative NPV.
3 .
Westland Manufacturing could spend $5,000 to update its existing fluorescent lighting fixtures to newer fluorescent fixtures that would be more energy efficient. Explain why updating the light fixtures with newer fluorescent fixtures and replacing the existing fixtures with LED fixtures would be considered mutually exclusive projects.
4 .
When faced with a decision between two good but mutually exclusive projects, should a manager base the decision on NPV or IRR? Why?
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