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Primary Methods Used For Capital Budgeting , Aug 2019

By : Abram Scharf Posted August 2, 2019 Reading Time: 2 minutes
No. of views: 241

In the present scenario, the companies use various tactics to evaluate what’s the best way to invest funds in the projects. Capital budgeting is the most common process used by the organizations for this evaluation. There are different techniques used in the capital budgeting process that we are going to discuss further in this article. However, if you are a student who is facing any kind of troubles, then you can get the best assignment help on capital budgeting from the experts of BookMyEssay.

Understanding the main Methodologies of Capital Budgeting:

  • Payback period technique: This method of capital budgeting is used by the businesses to calculate how much the time the company would take to get the original investment made. There is a simple way to calculate it. You just have to divide the amount of capital with net annual cash flow. If you get payback time period is shorter, then this means the company is going to recover its investment quickly. The results-driven from the payback method is highly based on the strategies that companies are implementing for the evaluation of the project.  This method is ready-to-use for application. It doesn’t involve any kind of complex and tedious calculations. If the company facing issues like liquidity, then it is best to use this method.
  • Net Present Value (NPV): Another effective technique of capital budgeting is net present value. This method is utilized when companies want to evaluate proposals for capital investments. As the name suggests, the NPV method demonstrates the value of the inflows and outflows generated by the project. In this method the time and the amount of cash flow are important. Plus, it is also mandatory to gather information about the cash outflows and inflow with the company’s required rate of for return on the investment. When the discount rate rises, the net present value of the project falls.
  • Internal Rate of Return (IRR): This method is used to measure the ROI of the project. This method simply uses the discount rate which makes the current value of the cash flows equals to zero. Generally, this method is used to compare and contrast the effectiveness of various projects. In this method, the time value of money is also included. The project that brings maximum profit is accepted and rest are rejected. Calculation and computation through the internal rate of return method can be a little bit challenging.

These are the three major methods of capital budgeting and if you want to know more about these techniques then you should take help from the professionals. So, instead of asking “who can do my homework approach the experts of BookMyEssay today!