Financial Decision Making Quiz

Q1. Identify and explain 2 benefits and 2 drawbacks of adopting the payback period. Based on the payback period strategy, which project(s) should Reliance & Co. choose? Explain your response.

Q2. Identify and explain 2 benefits and 2 drawbacks of adopting the net present value method. Based on the net present value method, which project(s) should Reliance & Co. choose? Explain your response.

Q3. Assume the capital budget is increased to $10,000,000.00 by the Board of Directors. Which project(s) should be chosen using the payback period approach and which project(s) should be chosen using the net present value method? Explain your response

Q4. State the reasons for conflicting rankings of the projects based on different capital budgeting analysis methods. Whenever there is a conflict in ranking between NPV and IRR, which method is preferable?

Q5. Define sensitivity analysis. List 3 assumption-based questions wherein sensitivity analysis can be used in the capital budgeting process by management. Which planning and management tool can further compliment the sensitivity analysis?

Q1. Define the concept of capital budgeting. List down the 6 stages of capital budgeting which Lenovo Company should take to evaluate and implement this security system project?

Q2. Lenovo Comp utilizes the Net Present Value (NPV) method to quantify the financial aspects of corporate decisions. Calculate the NPV of each of the three alternatives. Below information will help you in computation.

Q3. Explain the concept of Net Present Value (NPV). Discuss the decision criteria used in NPV to accept suitable projects. Based on NPV calculation in the above question, which of the three alternatives should the team recommend? Explain why.

Q4. Identify and briefly discuss the non-financial/qualitative considerations of each vendor that the Lenovo Company team should consider in this security project prior to making a recommendation to senior management.

Q5. Explain the concept of Internal Rate of Return (IRR). Discuss the decision criteria used in IRR to evaluate suitable projects. Describe one benefit and drawback each of IRR.