Explain Different Methods of Capital Budgeting
A new capital investment project is important for the growth and expansion of a company. Business firm is confronted with alternative investment proposals. Profitability Index Pi Or Benefit Cost Ratio Payback period and Accounting rate of return method. . Net present value NPV The net present value capital budgeting method measures how profitable you can expect a project to be. Iii capital rationing decisions. Capital budgeting is the process by which investors determine the value of a potential investment project. Accounting Rate of Return Method 3. I Pay-Back Period PBP. Payback Period Method 2. Capital budgeting limitations are as follows-. Payback Period Net Present Value Method Internal Rate of Return and Profitability Index are the methods to carry out capital budgeting. New Products or New Markets. As a rule of thumb when a project has a profitability index over 1 it will likely be ...