Question

What is the primary "most important" capital budgeting procedure? Why?

Answer 1

The Net Present Value Approach is the most important capital budgeting procedures for evaluating capital investment proposals. In this technique the cash flow that's expected at completely different periods of time are discounted at a specific rate. The current values of the money flow are compared to the initial investment. If the distinction between them is positive (+) then it's accepted or otherwise rejected. This technique considers the time value of money and is consistent withthe target of increasing profits for the owners. However, understanding the concept of cost of capital isn't a straightforward task.