Chapter 14 Questions / Louis C Gapenski/ Healthcare Finance, An Introduction to Accounting and Financial Management

14.1 a.  What is capital budgeting? Why are capital budgeting decisions so important to businesses?

b.  What is the purpose of placing capital projects into categories such as mandatory replacement or expansion of existing products, services, or markets?

c.  Should financial analysis play the dominant role in capital budgeting decisions? Explain your answer.

d.  What are the four steps of capital budgeting analysis?

14.3  Describe the following project breakeven and profitability measures. Be sure to include each measure’s economic interpretation.

 a. Payback

 b. Net present value (NPV)

 c. Internal rate of return (IRR)

 d.Modified internal rate of return (MIRR)

14.4  Critique this statement: “NPV is a better measure of project profitability than IRR because it leads to better capital investment decisions.”

Please do not answer any one question in more than 300 words.