After studying this chapter you should be able to

• Calculate the net present value of an investment.
• Calculate the internal rate of return of a project and know what to look out for when using the internal rate of return rule.
• Explain why the payback and discounted payback rules and book rate of return rule don' lways make shareholders better off.
• Use the net present value rule to analyze three common problems that involve competing projects: (a) when to postpone an investment expenditure, (b) how to choose between projects with equal lives, and (c) when to replace equipment.
• Calculate the profitability index and use it to choose between projects when funds are limited.