Question

What are examples of capital budgeting?

Answer 1

Capital Budgeting - It is Decision making process releted to investment in long term projects.

Examples of Capital Budgeting -

• Payback period - It shows in which year  the company is recovered its cost
• Discounted Payback period - It shows no of years to takes break even by discounting future cashflow.
• NPV = Pv of inflow - Outflow
• IRR = It is the interest rate at which NPV of the Project is Zero.
• Profitability Index

  NPV = Pv of inflow - outflow
  PV of inflow is calculated on excel by formula-
  =PV(rate,nper,pmt,fv)

  IRR is to be calculated in excel by formula
  =IRR(values,[guess])
  Profitability Index = Pv of Total inflow / Outflow

Note - In Simple payback period future cashflow is not discounted.

I hope this clear your doubt.

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