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7 terms

The capital budgeting Decision

STUDY
PLAY
IRR
Requires the determination of the yield on an investment with subsequent cash inflows.
payback method
Time reqired to recoup the initial investment.
rnking ivestment poposals
1. Payback Method
2. Internal Rate of Return
3. Net Presemt Value
dcision-making process
1. search/discover investtment opportunities
2. Collection of data
3. Eavaluationf og decision making
4. Revaluation of adjustment
net present value
discounting back the inflows over the life of the investment to detemine whether they equal or exceed the requred investment.
NPV
PV of cash inflows - Pv of cash outflows
selectioon strategy
1. profitability equal /exceed the cost of capital
2. Projects that are mutually exclusive
3. Projects that are not mutually exclusive