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Capital Budgeting Techniques (Example)

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Capital Budgeting Name Institutional Affiliation Explain the net present value (NPV) method for determining a capital budgeting project's desirability. What is the acceptance benchmark when using NPV? Net present value is a capital budgeting methods that assist in the evaluation of the best investment projects that investors should focus on along the way. The investment projects usually consist massive amounts of money therefore requiring appropriate consideration along the way. NPV incorporates the use of discounted cash flows in the determination of the risks and variables in question to make the best evaluation. NPV method estimates the best investment to undertake and the increase expected from choosing one project from the other (Peavler 2011). The value of the cash inflows and outflows of the projects in question greater or equal to zero is an indication that it should receive the consideration for investment. In cases where the NPV is 520 $980 $1 250 IRR=? IRR = the amount of cash outflow/ Cash inflow Therefore 12000/2100 = 5.7143 In evaluating the annuity table the approximate value of IRR is 7%. The company should reject the project since the IRR of 7% is less than the cost of capital of 12%. MIRR =? MIRR = (PV of positive cash flows) 2/ (PV of negative cash flow) 2 = (8020)2 / (12000)2 = 0.8467 Approximate valuation of the project = 4% Therefore the company should accept the project. References Gad  S. (2012 November 15). Capital Budgeting: Capital Budgeting Decision Tools [Video file]. Retrieved from https://www.investopedia.com/university/capital-budgeting/decision-tools.asp Peavler  R. (2011 November 18). What Is Net Present Value (NPV) in Capital Budgeting?[Video file]. Retrieved from https://www.thebalance.com/net-present-value-npv-as-a-capital-budgeting-method-392915 Peavler  R. (2011 November 21). What's the Best Capital Budgeting Decision Method? [Video file]. Retrieved from https://www.thebalance.com/irr-vs-net-present-value-392914 Staff  I. (2016 March 14). Modified Internal Rate Of Return - MIRR [Video file]. Retrieved from https://www.investopedia.com/terms/m/mirr.asp [...]

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Answer questions and problems in APA format, include reference and title page

Subject Area: Mathematics

Document Type: Dissertation Proposal

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01.11.2018

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