Business Analysis
Essay Preview: Business Analysis
Report this essay
Chapter No. 11 – Capital Budgeting
Contents
Capital budgets as opposed to revenue budgets
Different kinds of capital budgets – non-productive assets, improving operating efficiency and capital projects
Choosing capital projects – Conventional and Discounted Cash Flow techniques
Payback period, Discounted payback period, Net Present Value, Internal Rate of Return, Profitability Index methods
Assumptions underlying different methods
Introduction to IRR vs. NPV
Incremental cash flow principle for evaluation of replacement decisions
Numerical exercises on incremental cash flows, NPV, IRR, Discounted payback period and Profitability Index
At the end of the chapter the student will be able to:
Apply incremental cash flow principle to a replacement decision
Apply conventional as well as DCF techniques to capital investment decisions
Determine NPV for a given project and fix the range of rates between which IRR for a given set of projections would lie
Understand how IRR readily offers itself for fixing Equated installments on a loan at a given rate of interest, duration and periodicity like monthly or quarterly
Capital budgets as opposed to revenue budgets
The assumption here is that the students understand the significance of the term “budgets”. To recap, “budgets” are essentially meant for:
Allocation