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This technique applies cash flows and not accounting profits. Techniques of capital budgeting. It is therefore the dis counting rate that equates NPV to zero.

Capital budgeting techniques are grouped in two: Capital budgeting notes pdf download does not have clear decision criteria as a firm may face difficulty in determining the minimum acceptable payback period 5. The accounting information used is readily available from pdt financial statements.

PBP does not take into account the time value of money. This is the difference between the present value of cash inflows and the present value of cash outflows of a project.

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Knowledge is your reward. Don’t show me this again Welcome! Chapter 11 Techniques of Capital Budgeting.

Remove them from Saved? The opportunity cost of capital is the expected rate of return that an investor could earn if the money would have been invested in financial assets of equivalent risk.

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Pay back period method PBP ii. Find materials for this course in the pages linked along the left.

Capital Budgeting Techniques Notes

We don’t offer credit or certification for using OCW. Cashflows of the investment should be forecasted based on realistic assumptions. Growth companies earning very high rates of return on the existing assets may reject profitable projects as they have set a higher minimum acceptable ARR, the less profitable companies may set a very low acceptable ARR and may end up capital budgeting notes pdf download bad projects. Are you sure you want to continue?

Simple to understand and use.

Capital Budgeting Techniques Notes | Capital Budgeting | Net Present Value

PBP is cost effective as it does not require use capital budgeting notes pdf download computers and a lot of analysis 4. Download files for later. Net present value method NPV iv. Sign up to vote on this title. A Simple Budgeying by K. There are different methods of analyzing the viability of an investment. It does not consider all the cashflows in the entire life of the project.

Use OCW to guide your own life-long learning, or to teach others. Dpwnload is a Company worth? Read Free for 30 Days. Pvf values do not depend on the pay back period but on the total cashflows.

When calculating the NPV the cashflows are used and this implies that any non-cash item such as depreciation if included in the cashflows should be adjusted for. Are you sure you want to delete this list? Another example presented incorporates discount rates capital budgeting notes pdf download time and NPV in the context of project decisions. Downloaad Dialog Are you sure? Capital budgeting notes pdf download to friends and colleagues. There’s no signup, and no start or end dates.

This is one of over 2, courses on OCW. Also remove everything in this list from your library. These slides present examples involving the calculation of discount rates over time and project interactions.

Please note that slides 17—19 are not covered in the video lectures but can be reviewed independently.

Uses accounting profits instead of cashflows which could have been arbitrarily determined. Ignores time value of money.

Concepts presented include the profitability index, internal rate of return, and capital rationing. It is inconsistent with the shareholders wealth maximization objective. Modify, remix, and reuse just remember to cite OCW as the budgfting. To get the present values a discount rate is capital budgeting notes pdf download which is the rate of return or the opportunity cost of capital.

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