capital budget 2

a) discuss potential flows with the regular payback method. Discuss whether or not the discounted payback method corrects all of these flaws.

b) explain why the NPV of a relatively long-term project (one for which a high percentage of its cash flows occurs in the distant future) is more sensitive to changes in the WACC than that of a short-term project.

c) explain why IRR might be overly optimistic metric (give example of a project that might drive IRR artificially too high). What is the way to correct for inflationary IRR?

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