Capital budgeting assignment help is one of our favorite topics in our work. Capital budgeting is a technique that an organization uses to determine whether it should implement a given long term capital investment opportunity for instance purchase of new machine, building, engage in research and development etc. It uses different appraisal techniques which are aimed at ranking the alternative opportunities available in terms of their importance. The primary aim of capital budgeting is to increase the value of the firm by putting shareholders capital in the best profit generating opportunities by analyzing the possible cash inflows for a given capital investment. Capital budgeting has been taught in schools for long in order to ensure that learners get the right knowledge and skills when it comes to company capital budgeting among competing investment alternatives. Students can get capital budgeting assignment help by engaging our qualified professionals.
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Different methods used in capital budgeting
- Net present value (NPV)
This method is used to appraise investments which generate highest positive cash inflow over a given period of time. It can be used to budget for both independent and mutually exclusive projects with a given discounting rate.
- Risk adjusted discount rate (RADR)
This method uses a different discounting rate for projects with different risk levels. Normal projects are discounted using the prevailing cost of capital while project possessing greater risk are discounted using a higher discount rate.
- Internal rate of return (IRR)
It is similar to NPV method when it comes to decision making only that IRR seeks to determine a discounting rate that generates a zero NPV. It is used to measure how efficient an investment project is.
- Payback period
Simply defined, payback period is the time that it takes for an investment to refund the initial capital outlay. It is a simple capital budgeting technique since it only considers for how long will the cashflows payback the initial investment.
Other investment appraisal techniques used include; average accounting returns, profitability index, equivalent annual cost, real options valuation and modified internal rate of return. A good appraisal technique should recognise the time value of money and give a decision criteria for the best alternative.
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