Week 6 discussion - Week 6 discussion Discuss the major...

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Week 6 discussion Discuss the major capital budgeting methods used by corporations to evaluate projects. The three major capital budgeting methods are Net present Value, Internal Rate of Return, and Payback Period. It is a very important process to weigh different options on whether to expand production or add new equipment to an operation for example. Internal Rate of Return or IRR is when a percentage is used to compare a capital investment to other kinds of investments. Expected returns are divided by the expenditure amount and a percentage produced. A company must then look at all the expenditures and determine what an acceptable return percentage is for a capital investment. This acceptable rate is called a hurdle rate. If the percentage is higher than the hurdle rate, the investment is worth considering. Net Present Value or NPV is a method which considers all the financial factors such as exchange rates, inflation, inflows and outflows over time.

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