Tag Archives: Capital budgeting basics

Portfolio Risk and Reward Measurement

Portfolio Risk and Reward Investment is always associated with two most important things namely, risks and returns and measuring both of these is always a crucial part of every investment. When it comes to the measurement of the risks and returns you may come across a number of measurement techniques of which Standard Deviation takes… Read More »

Why people invest in stocks?|Capital Budgeting Techniques

Why people invest in stocks? Investors buy, hold and sell financial assets to earn returns on them. Within the spectrum of financial assets, why do some people buy common stocks instead of safely depositing their money in an insured saving account with a guaranteed minimum return? Describe the factors/characteristics that investors keep in consideration while preferring… Read More »

Accounting Rate of Return (ARR) | Capital Budgeting Techniques

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 »

Difference between Annuity Due and Ordinary Annuity

Annuity Due and Ordinary Annuity – Capital Budgeting Techniques We often encounter situations where we have multiple cash flows of same amount. A very common example of such cash flows is loan repayment plan where borrower is asked to repay the loan by making equal installments over some period of time. Almost all home mortgages, car… Read More »

Independent and Mutually Exclusive Projects

Independent and Mutually Exclusive Projects Understanding of classification of capital budgeting projects plays a crucial role while analyzing viability of projects. What is mutually Independent Projects? A Project whose cash flows have no impact on the acceptance or rejection of other projects is termed as Independent Project (not mutually exclusive). Thus, all such Projects which meet… Read More »

Capital Structure and Cash Flows

Capital Structure and Cash Flows On one hand, operations of the company may help in forecasting of future cash flows but in addition to this, future cash inflows and outflows can also be accessed through company capital structure. A corporation may use different combinations of equity, debt, or mixture of securities to finance its assets… Read More »

Profitability Index

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 »