If the profitability index of a project is 0.75, it means: Your answer is incorrect. The current worth of a sum of money to be received at a future date is called: Your answer is incorrect. = 4 years. Visit us to find here free business notes of all the subjects of B.com, M.com, BBA & MBA online. For any project that respects itself, the business model, or Business Models, is a crucial point that should not be … [Read More...], The Dividend Policy in Business:- The dividend decision is one of three major corporate finance decisions, such as investment selection - choice of … [Read More...], Cash analysis is an essential part of financial analysis. 0000017212 00000 n
The correct answer is “a dependent project” (option 2). Your answer is incorrect. Supply of capital. 0000012296 00000 n
Capital budgeting is mathematical in nature which means that there are certain techniques related to quantitative investment and are employed to determine the worth of an opportunity of investment. 0000029134 00000 n
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Internal Rate of Return (IRR) is more commonly used measure of capital budgeting techniques than NPV. Rationing of capital. The sales & future cash flows need to be forecasted in calculation of NPV. ADVERTISEMENTS: 3. 0000013105 00000 n
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The ratio of current value of future cash flows to the initial investment is referred to as PI. 0000026110 00000 n
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We may also said that capital budgeting is technique employed to determine the value of project and investment in fixed assets. LG 2: IRR . Capital is a scarce resource and is therefore, it has a cost. In such a situation, it has to choose out the project which is the most profitable. The ROI can easily be calculated. 0000026324 00000 n
The answer of above equation is equal to -113 which is less than zero, so the rate of IRR need to be kept slightly lower than 50%. 19%. Accounting For Management. The problem of how much to plough back can be guided by a number of principles. Show your love for us by sharing our contents. Your answer is incorrect. The correct answer is “the higher the profitability index, the more desirable the project” (option 2). Before publishing your Essay on this site, please read the following pages: 1. World’s Largest Collection of Essays! The higher rate of return of 90% is healthy option for the business but other alternative opportunities should also be considered before this one. = $5,000. Intermediate. Projects Year Zeta Omega 0 $(50,000) $(45,000) 1 20,000 42,000 . Fixed assets are that portion of balance sheets which are long term in nature. 0000020517 00000 n
1. a. Compute the (i) net present value and (ii) internal rate of return of the following capital budgeting projects. 0000009082 00000 n
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When two projectors are under consideration than the project with the higher NPV should be pursued. A. payback period. He was the man behind all the basic laws of Modern Economics. nice. 0000018962 00000 n
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The correct answer is “-$1,000” (option 2). The correct answer is “positive or zero” (option 3). We have solutions for your book! According to R.M. Business Study Notes is all about business studies or business education. The firm’s required rate of return is 12 percent. The selected data is given below: If equipment is depreciated using straight line method, what is the depreciation tax shield associated with the new equipment? The amount that can be expected from accumulated depreciation and retained earnings are the most important part of capital expenditure budgeting. Only that investment should be considered for acceptance which yields a rate of return in excess of cost of capital.