Capital Budgeting

Capital budgeting
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Capital budgeting (or investment appraisal) is the planning process used to determine whether a firm's long term investments such as new machinery, replacement machinery, new plants, new products, and research development projects are worth pursuing. It is budget for major capital, or investment, expenditures.[1]
Many formal methods are used in capital budgeting, including the techniques such as
  * Accounting rate of return
  * Net present value
  * Profitability index
  * Internal rate of return
  * Modified internal rate of return
  * Equivalent annuity
These methods use the incremental cash flows from each potential investment, or project Techniques based on accounting earnings and accounting rules are sometimes used - though economists consider this to be improper - such as the accounting rate of return, and "return on investment." Simplified and hybrid methods are used as well, such as payback period and discounted payback period.
Contents[hide]   * 1 Net present value   * 2 Internal rate of return   * 3 Equivalent annuity method   * 4 Real options   * 5 Ranked Projects   * 6 Funding Sources   * 7 External links and references |
[edit] Net present value
Main article: Net present value
Each potential project's... [continues]

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