Task: Why is capital budgeting important, specifically in terms of increasing shareholder wealth?
1) Describe an example where pursuing an investment that has not passed normal capital budgeting go/no go criteria, may hurt the firms value.
2) Explain the pros and cons of the simple payback method, the net present value method and IRR method and why you think, if you had to pick one, that the NPV method may be best.
3) Why an accurate determination of a firms cost of capital is important for both the IRR method and NPV methods?