Project Analysis – Capital Budgeting Techniques Nile’s Manufacturing is considering buying automated machinery that costs $250,000. Working capital requirement is $25,000 and they are expecting Annual cash savings of $103,000 for 5 years. The company uses straight-line depreciation method. The salvage value the machinery at the end of year 5 is expected to be… Read More »
Project Analysis – Capital Budgeting Techniques Solved example of Payback Period and ARR Steve has been appointed as finance director of a company. His only aim is to gain some experience before moving to a larger company. His intention is to work here for three years and when he would leave the company; its share price… Read More »
Project Analysis – Capital Budgeting Techniques Net Present Value Example We are considering following project for investment purpose. Initial cost of the project: $800,000 Project Life: 5 years Annual Net Operation Profit:… Read More »
Accounting Rate of Return – Capital Budgeting Techniques Accounting rate of return is the project evaluation technique which differs from other capital budgeting techniques because the focus of this technique is average annual net income or accounting income rather than cash flows. ARR is defined as the ratio of average accounting income to average investment. You will find… Read More »
Internal Rate Of Return And Mutually Exclusive Projects……. What’s the Concern? While considering the mutually exclusive projects, IRR technique can be misleading. Investment projects are said to be mutually exclusive if only one project could be accepted and others would have to be rejected. NPV and IRR methods for project evaluation leads to conflicting results… Read More »
Profitability Index Profitability index (PI) is the ratio of investment to pay off a suggested project. It is a useful capital budgeting technique for grading projects because it measures the value created per unit of investment made by the investor. This technique is also known as Profit Investment Ratio (PIR), Benefit-Cost Ratio and Value Investment… Read More »
Importance of Capital Budgeting Decisions Capital budgeting is a process used to determine whether a firm’s proposed investments or projects are worth undertaking or not. The process of allocating budget for fixed investment opportunities is crucial because they are generally long-lived and not easily reversed once they are made. So we can say that this… Read More »