FIN 571 Week 4 DQs;1. Some firms use a single discount rate to compute the NPV of all its potential capital budgeting projects (Kruger, Landier,& Thesmar, 2011). Even though, the projects have a wide range of non-diversifiable risk. The firm then undertakes all those projects that appear to have positive NPVs. Does this strategy really make sense? Why or why not?;Reference;Kruger, P., Landier, A., & Thesmar, D. (2011, September). The WACC Fallacy: The Real Effects of Using a Unique Discount Rate.;2.. If the IRR of a project is exactly equal to its cost of capital should you approve the project? What are some things to consider? Why?;3 Why are capital budgeting projects are frequently classified into groups such as maintenance, cost savings/revenue-enhancement, capacity-expansion, new product/new business, and projects mandated by regulation or firm policy?;4 Is it really necessary to perform post audits, reviewing and measuring the performance of previous capital investments? Why? How soon should this be done?;5 Why is it important to recognize and exclude sunk costs from a capital budgeting analysis? After all, isn?t a cost a cost?
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