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Pages:
2 pages/≈550 words
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2 Sources
Level:
APA
Subject:
Accounting, Finance, SPSS
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Other (Not Listed)
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English (U.S.)
Document:
MS Word
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Topic:

Capital Budgeting Techniques (Other (Not Listed) Sample)

Instructions:

Using the CSU Online Library and the unit reading assignment, explore the capital budgeting techniques covered in the unit, NPV, PI, IRR, and Payback. Compare and contrast each of the techniques with an emphasis on comparative strengths and weaknesses. Be sure to show you understand how each is applied and used in capital budgeting decisions. Use Microsoft Word to complete your answer. Your paper on comparing techniques should be no less than two pages and any references should be cited using proper APA format.

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Content:

Capital Budgeting Techniques: NPV, PI, IRR, and Payback
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Organizations use various capital budgeting techniques to assess the viability of investment projects. Each of the techniques has its strengths and limitations, but the Net Present Value (NPV), is the most widely used approach. The NPV determines the value of an investment focusing on discounting the ash flows while the IRR and PI measure the return of profitability, while the payback period represents the risk in investing in a project in a given time. When the techniques have different conclusions on the choice of an investment project then the NPV is used. A comparison of different capital budgeting techniques and highlighting on their features gives a clearer picture on the strength and weaknesses of each one of them.
The NPV takes into account cash inflows and outflows getting the difference between the two after discounting (Drake, 2006). As such, the technique focuses on the time value of money and maximizing shareholder wealth. It is preferred than the payback period which does not incorporate all the cash flows in capital budgeting analysis. Additionally, the NPV gives priority to the profitability and riskiness of projects. The decision criterion for the ...
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