Investment decision rule — purpose?
To determine if a project’s benefits justify its costs.
Decision rules overview — key tools?
NPV, IRR, Payback, PI, each with strengths and limitations.
Investment decision rule — purpose?
Determine if a project adds value.
Opportunity cost of capital — definition?
Return foregone by choosing an investment.
Expected return — role?
Anticipated project profitability.
Cost of capital — what?
Required return to attract investors.
NPV — definition?
Present value of cash flows minus initial investment.
IRR — what?
Discount rate with zero NPV.
Mutually exclusive projects — meaning?
Projects where selecting one excludes others.
Answer 9 questions on Investment Valuation and Decision-Making.
1. What does an investment decision rule refer to?
2. Who is credited with formulating the decision rule based on NPV?
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