FIN 534 Week 6 Discussion 1

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FIN 534 Week 6 Discussion 1

“The Basics of Capital Budgeting: Evaluating Cash Flows”  Please respond to the following:

• Elaborate on why the net present value (NPV) of a relatively long-term project is more sensitive to changes in the cost of capital than is the NPV of a short-term project. Provide two (2) examples of NPV that support your position.
• From the e-Activity, analyze the reasons why the short-term project that you have chosen might be ranked higher under the NPV criterion if the cost of capital is high, while the long-term project might be deemed better if the cost of capital is low. Determine whether or not changes in the cost of capital could ever cause a change in the internal rate of return (IRR) ranking of two (2) such projects. Provide an example of such a change—or the lack of one—to support your position