Capital Budgeting Process: Project Analysis and NPV Considerations
Research and answer the following questions.
• What types of projects require the least detailed and the most detailed analyses in the capital budgeting process?
• When two mutually exclusive projects are being compared, explain why the short-term project might be ranked higher under the NPV criterion if the cost of capital is high, whereas the long-term project might be deemed better if the cost of capital is low. Would changes in the cost of capital ever cause a change in IRR ranking of two such projects? Why or why not?