Essentials of Financial Management, 5th Edition by Pearson

CHAPTER 7

Capital Budgeting Techniques

LEARNING OBJECTIVES

• Understand the nature, types and importance of capital budgeting decisions
• Explain the methods of calculating net present value (NPV) and internal rate of return (IRR)
• Show the implications of net present value (NPV) and internal rate of return (IRR)
• Describe and compute payback accounting rate of return and discounted payback period methods
• Compare and contrast NPV and IRR methods and emphasize the superiority of NPV rule
• Compare NPV and PI methods

INTRODUCTION

An efficient allocation of capital is the most important finance function in the modern times. It involves decisions to commit the firm’s funds to the long-term assets. Capital budgeting or investment decisions are of ...