Discounted Payback Period One of the limitations in using payback period is that it does not take into account the time value of money. Thus, future cash inflows are not discounted or adjusted for debt/equity used to undertake the project, inflation, etc. However, the discounted payback period solves this problem. It considers the time value… Read More »
Internal Rate of Return Internal Rate of Return is another important technique used in Capital Budgeting Analysis to access the viability of an investment proposal. This is considered to be the most important alternative to Net Present Value (NPV). IRR is “The Discount rate at which the costs of investment equal to the benefits of… Read More »
Payback Period Payback period is the first formal and basic capital budgeting technique used to assess the viability of the project. It is defined as the time period required for the investment’s returns to cover its cost. Payback period is easy to apply and easy to understand technique; therefore, widely used by investors. For example, an investment… Read More »
Capital Budgeting Process Capital Budgeting Process is a process of identifying and evaluating projects where businesses are expected to receive cash flows over a period longer than one year. Any corporate capital budgeting decisions that can affect future earnings can be evaluated using this framework. Examples of Capital Budgeting Decisions: For example, decisions about whether to… Read More »
How To Use Financial Calculator? The financial calculator is considered as easiest and less time-consuming tool for computation of basic as well as advanced financial analysis techniques. A financial calculator is an ordinary calculator featuring few advanced and complex financial formulas so it can compute things like present value etc. financial calculator is really helpful as… Read More »
How to Calculate Net Present Value using Excel? The calculation of net present value is used when a business has to identify a viable investment opportunity. There are many ways to calculate the NPV. The simplest way is: By Use of NPV function in Excel: The NPV function consists of the following arguments: =NPV (Rate, FCF… Read More »
Net Present Value Net Present Value measures the difference between present value of future cash inflows generated by a project and cash outflows during a specific period of time. With a help of net present value, we can figure out an investment that is expected to generate positive cash flows. In order to calculate the… Read More »
Importance of Capital Budgeting Decisions Capital budgeting is a process used to determine whether a firm’s proposed investments or projects are worth undertaking or not. The process of allocating budget for fixed investment opportunities is crucial because they are generally long-lived and not easily reversed once they are made. So we can say that this… Read More »
What is Capital Budgeting? In financial management, Capital budgeting is the process which enables the management to decide which, when and where to make long-term investments. Businesses always look for opportunities that increase shareholder wealth. In capital budgeting, the managers try to figure out investment opportunities that are worth more to the business than they cost… Read More »