DESCRIPTIVE QUESTIONS
  1. Explain the successive steps in the process of capital budgeting.
  2. What are the ingredients of initial cash flow?
  3. Does operating cash flow exclude: (i) depreciation; and (ii) financing cost? Give reasons in support of your argument.
  4. How is terminal cash flow determined? Can a project be accepted if the break-even salvage value is greater than the actual salvage value?
  5. What do you mean by sunk cost? Does it form a part of the cash flow?
  6. Compare NPV and IRR. Do these two evaluation criteria yield similar results as far as ranking of projects is concerned? If not, what are the reasons behind this?
  7. Compare NPV and Profitability Index. Which of the two is more reliable?

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