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Finance_9

Capital Budgeting Techniques and Practice

QuestionAnswer
The process of decision making with respect to investments made in fixed assets that is, should a proposed project be accepted or rejected. Capital Budgeting
The number of years it takes to recapture a project's initial outlay. Payback Period
The present value of an investment;s annual free cash flows less the investment;s initial outlay. Net Present Value
The ratio of the present value of an investment's future cash flows to the investment;s initial outlay. Profitability Index
The rate of return that the project earns. Internal Rate of Return
Placing a limit on the dollar size of the capital budget. Capital Rationing
Projects that if undertaken, would serve the same purpose. thus accepting one will necessarily mean rejecting the others. Mutually Exclusive
Occurs when mutually exclusive projects of unequal size are examined. Size Disparity
Time Disparity
Unequal Lives
An annuity cash flow that yields the same present value as the project's NPV. Equivalent Annual Annuity
Created by: Wilkins188