Ppt and Notes on Capital Budgeting

Ppt and Notes on Capital Budgeting

CAPITAL BUDGETING

‘Capital budgeting’ (or investment appraisal) is the planning process used to determine whether a firm’s long term investments such as new machinery, replacement machinery, new plants, new products, and research and development projects are worth pursuing.

Many formal methods are used in capital budgeting, including the techniques such as

1. Discounted cash flow criteria (Time adjusted methods)

* Net present value

* Profitability index

* Internal rate of return

2. Non-discounted cash flow criteria (traditional methods)

* Discounted payback period

* Accounting rate of return 

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