Tag Archives: capital budgeting techniques

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 »

Internal Rate of Return

Internal Rate of Return Internal Rate of Return is another important technique used in Capital Budgeting Analysis to access the viability of an investment proposal. This is considered to be the most important alternative to Net Present Value (NPV). IRR is “The Discount rate at which the costs of investment equal to the benefits of… Read More »

Payback Period

Payback Period Payback period is the first formal and basic capital budgeting technique used to assess the viability of the project. It is defined as the time period required for the investment’s returns to cover its cost. Payback period is easy to apply and easy to understand technique; therefore, widely used by investors. For example, an investment… Read More »