This question required that a capital budgeting question to be created and a solution provided for it. The question involved a long-term project that a company is considering investing in. The solution uses two capital budgeting methods, the Payback period method and the Net Present Value method, to come to a decision about whether the firm should invest in the project.
PAYBACK PERIOD METHOD AND NET PRESENT VALUE METHODS OF CAPITAL BUDGETING DEMONSTRATED
A company whose cost of capital is 10% is considering investment in two projects. The cash flow for each ...
This solution gives a detailed demonstration of the use of capital budgeting techniques in decision making. The solution shows how two capital budgeting methods, namely, the Payback Period Method and the Net Present Value method can be used to determine whether a long-term project is viable or not.
The solution is provided in excel format and an explanation as to the viability of the project is given after each method is demonstrated.