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1、LEARNINGOBJECTIVESAfterstudyingthischapter,youshouldunderstand:LO1ThereasonswhythenetpresentNETPRESENTvaluecriterionisthebestwaytoevaluateproposedinvestments.LO2ThepaybackruleandsomeofitsVALUEANDshortcomings.9LO3Thediscountedpaybackruleandsomeofitssho
2、rtcomings.OTHERLO4Accountingratesofreturnandsomeoftheproblemswiththem.INVESTMENTLO5Theinternalrateofreturncriterionanditsstrengthsandweaknesses.CRITERIALO6Themodifiedinternalrateofreturn.LO7Theprofitabilityindexanditsrelationtonetpresentvalue.IN2008,THE
3、AUTOMOBILEMANUFACTUR-pricetagofover$1billion,areobviouslymajorunder-INGINDUSTRYinNorthAmericawasfacedwithtakings,andtherisksandrewardsmustbecarefullychronicovercapacity.Bysomeestimates,Generalweighed.Inthischapter,wediscussthebasictoolsMotorsmayhaveha
4、dasmanyas12factoriesmoreusedinmakingsuchdecisions.thanitneeded.ButnotallautomobilemanufacturersInChapter1,wesawthatincreasingthevalueoffacedthisproblem.Toyotaannouncedplansforitsthestockinacompanyisthegoaloffinancialman-eighthNorthAmericanassemblyplant
5、inTupelo,agement.Thus,whatweneedtoknowishowtotellMississippi,a$1.3billion(projected)investment.Aboutwhetheraparticularinvestmentwillachievethatorthesametime,Hondaannouncedplanstobuildanewnot.ThischapterconsidersavarietyoftechniquesplantinsouthernIndia
6、naatacostof$550million,andthatareusedinpracticeforthispurpose.MoreBMWannouncedanexpansionofitsSpartanburg,important,itshowshowmanyofthesetechniquesSouthCarolina,planttobuildthenewX6model.canbemisleading,anditexplainswhythenetpresentCapitalBudgetingPAR
7、T4Toyota’snewplantisanexampleofacapitalbud-valueapproachistherightone.getingdecision.Decisionssuchasthisone,withaMastertheabilitytosolveproblemsinthischapterbyusingaspreadsheet.AccessExcelMasteronthestudentWebsitewww.mhhe.com/rwj.InChapter1,weidentifie
8、dthethreekeyareasofconcerntothefinancialmanager.Thefirstoftheseinvolvedtheques-tion:Whatfixedassetsshouldwebuy?Wecalledthisthecapitalbudgetingdecision.Inthischapter,webegintodealwiththeissuesthatariseinansweringthisquestion.Theprocessofallocating
