Capital Budgeting

Capital budgeting (or investment appraisal) is the process of determining the viability to long-term investments on purchase or replacement of property plant and equipment, new product line or other projects.

Capital budgeting consists of various techniques used by managers such as:

  1. Payback Period
  2. Discounted Payback Period
  3. Net Present Value
  4. Accounting Rate of Return
  5. Internal Rate of Return
  6. Profitability Index

All of the above techniques are based on the comparison of cash inflows and outflow of a project however they are substantially different in their approach.

A brief introduction to the above methods is given below:

The above techniques are explained in detail in next pages.

Written by Irfanullah Jan