Question
A manager favors a project because it boosts EPS but lowers value. What is the correct capital allocation criterion?
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Answer
Use NPV, not accounting metrics like EPS or ROE.
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Question
Why is using the firm's overall WACC for a project with very different risk a mistake?
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Answer
The discount rate should match project risk.
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Question
What is incorrect about discounting a risky project at the same rate as a low-risk maintenance project?
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Answer
It ignores risk differences; riskier projects need higher discount rates.
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Question
How should nominal cash flows be matched with discount rates in capital budgeting?
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Answer
Use nominal rates with nominal cash flows.
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