Capital budgeting techniques a reading prepared by pamela peterson drake o u t l i n e 1 introduction 2 evaluation techniques 3 comparing techniques.
Some of the major techniques used in capital budgeting are as follows: 1 payback period 2 accounting rate of return method 3 net present value method 4 internal rate of return method 5 profitability index the payback (or payout) period is one of the most popular and widely recognized. Companies use several techniques to determine if it makes sense to invest funds in a capital expenditure project the attractiveness of a capital investment should consider the time value of money.
Capital budgeting decisions relate to decisions on whether or not a client should invest in a long-term project, capital facilities and/or capital equipment/machinery capital budget decisions have a major effect on a firm’s operations for years to come, and the smaller a firm is, the greater the potential impact, since the investment being made could represent a substantial percent of the firm’s assets. Capital budgeting is a quantitative assessment that involves forecasting future performance to make long-term investment decisions capital budgeting techniques may use data from financial and operating reports to predict potential performance of corporate investment and strategic options.
Capital budgeting techniques / methods there are different methods adopted for capital budgeting the traditional methods or non discount methods include: payback period and accounting rate of return method.
Capital budgeting, and investment appraisal, is the planning process used to determine whether an organization's long term investments such as new machinery, replacement of machinery, new plants, new products, and research development projects are worth the funding of cash through the firm's capitalization structure (debt, equity or retained earnings. Capital budgeting is the process in which a business determines and evaluates potential large expenses or investments these expenditures and investments include projects such as building a new plant or investing in a long-term venture.