Case Questions

1 What are the disadvantages of the payback method and the average-rate-of-return method?

2 What are the conditions under which the net-present-value and internal-rate-of-return methods will lead to the same capital-budgeting decision?

3 Why is the net-present-value method theoretically better than the internal-rate-of-return method?

4 Why is internal rate of return more popular than net present value in practice?

5 The website of the Bank for International Settlements, www.bis.org/cbanks.htm, and the website of the US State Department, www.state.gov, give economic information on most countries around the world. Access these websites to obtain economic information that can be used to assess the feasibility of projects in a developing country.

Source. Kim, S. H. and G. Ulferts, "A Summary of Multinational Capital Budgeting Practices," Managerial Finance, Spring 1996, pp. 75-85.

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