What is capital budgeting?

What is the difference between independent and mutually exclusive projects?

Define the term net present value (NPV).

What is each franchise’s NPV?

What is the rationale behind the NPV method? According to NPV, which franchise or franchises should be accepted if they are independent? Mutually exclusive?

Would the NPVs change if the cost of capital changed?

Define the term internal rate of return (IRR). What is each franchise’s IRR?

How is the IRR on a project related to the YTM on a bond?

What is the logic behind the IRR method? According to IRR, which franchises should be accepted if they are independent? Mutually exclusive?

Would the franchises’ IRRs change if the cost of capital changed?

Draw NPV profiles for Franchises L and S. At what discount rate do the profiles cross?