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In the context of capital budgeting, what is meant by the word “discounting”?
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- (1) What are the three types of risk that are relevant in capital budgeting? (2) How is each of these risk types measured, and how do they relate to one another? (3) How is each type of risk used in the capital budgeting process?How is capital budgeting similar to security valuation? How is it different?What is meant by the term payback period? How is this criterion sometimes used in capital budgeting?
- Are capital budgeting decisions termed either replacement decisions or expansion decisions? How can I distinguish between these two decision types and illustrate with an example?Outline the limitations of the capital asset pricing model as a method for obtaining discount rates for the purposes of capital budgeting.Explain how capital budgeting handles a gain or loss on disposal.
