Financial Management: Principles and Applications, 13/e

11.4 A Glance at Actual Capital-Budgeting Practices

During the past 50 years, the popularity of each of the capital-budgeting methods we have discussed here has shifted rather dramatically. In the 1950s and 1960s, the payback period method dominated all other capital-budgeting metrics; however, in recent years the internal rate of return and the net present value techniques have gained in popularity and today are used by virtually all major corporations.

Table 11.3

Basic Capital-Budgeting Techniques

These are the primary capital-budgeting techniques or criteria that are used in industry practice. Of these techniques, net present value, or NPV, offers the best single indicator of the investment alternative’s potential contribution to the value ...