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Finance:Capital Budgeting Techniques

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3.Comparing Investment Criteria Define each of the following investment rules and discuss any potential shortcomings of each. In your definition, state the criterion for accepting or rejecting independent projects under each rule.
a. Payback period.
b. Average accounting return.
c. Internal rate of return.
d. Profitability index.
e. Net present value.

Discuss an overview of the project's cash flow analysis, the use of different methods to evaluate capital projects, including Net Present Value, Payback Period, Discounted Payback, and Internal rate of return.

Discuss different sources for the appropriate discount rate used to evaluate the viability of the project. (Profitability Index, measuring cash flows, analysis of the potential risks associated with cash flows, the impact of inflation on capital budgeting decision).

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Solution Summary

The problem set deal with issues in capital budgeting:The use of payback period, net present value, accounting rate of return etc to evaluate projects.

Solution provided by:
Chidi Ngene, M. Sc.
Education
  • B. Sc., University of Nigeria
  • M. Sc., London South Bank University
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