Paper Topic:

Managment

Capital Budgeting , Net Present Value and other Decision Tools

EXECUTIVE SUMMARY

Financial mangers often use different capital budgeting methods to evaluate the feasibility of projects . All potential investors require a minimum rate of return on their investments in any project . In to evaluate the return on an investment financial managers often use different capital budgeting techniques which ensure that a project is feasible for investment or not . It is a rule of thumb that cash flows are often used to evaluate the return on investment in most capital budgeting methods due

to the factor of time value of money

From an analytical perspective , the investment analysis can be classified into two categories , non discounted and discounted cash flows . Average rate of return and payback method is the part of non discounted cash flows . Both methods are very easy to compute and also quite handy to understand results . Both non discounted methods are very popular among practitioners . However , a slight problem is that they can 't consider the factor of time value of money . In discounted cash flows three methods Net Present Value (NPV , Internal Rate of Return (IRR ) and benefit cost ratio . In all of the three procedures , the factor of time value of money is discussed before making the investment . All in all , capital budgeting decisions can bring about a significant impression on the organization 's future business operations

One can argue that a high-risk project with a good return is less desirable than a lower-risk project with...

9 pages

66.0 KB

Free sing-up