FIN 571 Week 4 Discussion

1. Describe how you would go about estimating a required return for computing the NPV of a project.

2. What are the strengths and weaknesses of the payback and the discounted payback?

3. Which of the capital budgeting criteria are the most sound? Which are the least sound?

4. Phyllis believes that the firm should use straight-line depreciation for a capital project because it results in higher net income during the early years of the projects life. Joanna believes that the firm should use the modified accelerated cost recovery system depreciation because it reduces the tax liability during the early years of the projects life. Assuming you have a choice between depreciation methods, whose advice should you follow? Why?