Techniques of capital budgeting

Question

Accepted Answer

Capital budgeting techniques involve evaluating and selecting investment projects based on their potential returns and risks.

Payback period: Measures the time required to recover the initial investment.
Net Present Value (NPV): Calculates the present value of cash flows and compares it to the initial investment.
Internal Rate of Return (IRR): Determines the discount rate that makes the NPV zero.
Profitability Index (PI): Measures the ratio of present value of cash inflows to the initial investment.
Accounting Rate of Return (ARR): Evaluates the profitability of an investment based on accounting measures.
Example: A company uses the payback period to determine how long it takes to recoup the investment in a new manufacturing facility.

Accepted Answer

profitability index

pay back period

accounting rate of return

internal rate of return

revised accounting rate of return

revised internal rate of return

Net present value