NPV and other criteria for Capital Budgeting

Other ways company looks at projects payback period i

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: multiple projects you can do, then there are two cases: Unlimited capital: do every project that has positive npv Real- world, limited capital: rank projects by net present value Need to ensure risk is factored into NPV, some companies don’t follow these ranks because of external factors. Other ways company looks at projects: Payback period: I want to know how quickly I get my money back. I don’t care about discount rates or NPV. Only how soon I have mitigated my risk by getting my money back. You don’t have to do any calculations, it’s really easy. It’s hard to figure out the right discount rate For public companies it’s fairly easy to calculate capital budget. Arguments for payback period: It sort of incorporates risk: it explains h...
View Full Document

{[ snackBarMessage ]}

Ask a homework question - tutors are online