Management 1 (Organizational Behaviour/Finance & Accounting) | 25. Capital Budgeting Techniques by Abraham | Learn Smarter
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25. Capital Budgeting Techniques

Capital budgeting is crucial for organizations as it involves planning and managing long-term investments, significantly impacting their financial health. Techniques such as Net Present Value (NPV) and Internal Rate of Return (IRR) are essential in evaluating the feasibility and profitability of projects, especially in sectors like IT and manufacturing. Understanding these techniques is vital for BTech CSE students to effectively contribute to strategic decision-making in tech companies.

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Sections

  • 25

    Capital Budgeting Techniques

    Capital budgeting techniques aid organizations in evaluating long-term investment projects that significantly impact their financial health.

    Learning Practice

  • 25.1

    Meaning And Importance Of Capital Budgeting

    Capital budgeting is a critical process for evaluating long-term investment projects that significantly impact an organization's financial health.

    Learning Practice

  • 25.1.1

    What Is Capital Budgeting?

    Capital budgeting is the process organizations use to evaluate major investments and long-term expenditures.

    Learning Practice

  • 25.1.2

    Importance Of Capital Budgeting

    Capital budgeting is essential for strategic financial decision-making regarding long-term investments.

    Learning Practice

  • 25.2

    Features Of Capital Budgeting Decisions

    Capital budgeting decisions are characterized by high expenditure, irreversibility, and risk, requiring careful evaluation.

    Learning Practice

  • 25.3

    Types Of Capital Investment Projects

    This section outlines the different types of capital investment projects including expansion, replacement, research and development, and regulatory projects.

    Learning Practice

  • 25.4

    Capital Budgeting Process

    The Capital Budgeting Process involves identifying, evaluating, selecting, financing, implementing, and reviewing investment opportunities critical to long-term financial planning.

    Learning Practice

  • 25.5

    Techniques Of Capital Budgeting

    This section covers the essential techniques used in capital budgeting, categorizing them into traditional methods and discounted cash flow techniques.

    Learning Practice

  • 25.5.A

    Traditional Techniques (Non-Discounted Methods)

    This section discusses traditional capital budgeting techniques, namely Payback Period (PBP) and Accounting Rate of Return (ARR), their definitions, advantages, and disadvantages.

    Learning Practice

  • 25.5.A.1

    Payback Period (Pbp)

    The Payback Period (PBP) is a capital budgeting technique that calculates the time required to recover an initial investment through annual cash inflows.

    Learning Practice

  • 25.5.A.2

    Accounting Rate Of Return (Arr)

    The Accounting Rate of Return (ARR) measures the profitability of an investment as a percentage of the initial investment.

    Learning Practice

  • 25.5.B

    Discounted Cash Flow (Dcf) Techniques

    Discounted Cash Flow (DCF) techniques are essential for evaluating long-term investments, factoring in the time value of money to assess project feasibility.

    Learning Practice

  • 25.5.B.1

    Net Present Value (Npv)

    Net Present Value (NPV) is a financial metric used to evaluate the profitability of an investment by comparing the present value of cash inflows and outflows.

    Learning Practice

  • 25.5.B.2

    Internal Rate Of Return (Irr)

    The Internal Rate of Return (IRR) is a key discounted cash flow technique used in capital budgeting to evaluate the profitability of investment projects.

    Learning Practice

  • 25.5.B.3

    Profitability Index (Pi)

    The Profitability Index (PI) is a financial metric used to evaluate the attractiveness of an investment, defined as the ratio of the present value of future cash inflows to the initial investment.

    Learning Practice

  • 25.6

    Comparative Analysis Of Techniques

    This section provides a comparative analysis of various capital budgeting techniques based on their consideration of cash flow, time value, simplicity, and reliability.

    Learning Practice

  • 25.7

    Factors Affecting Capital Budgeting Decisions

    This section discusses the key factors influencing capital budgeting decisions within organizations.

    Learning Practice

  • 25.8

    Capital Budgeting In Tech Companies

    Capital budgeting is vital for tech companies to make informed investment decisions in areas such as cloud infrastructure and software development.

    Learning Practice

  • 25.9

    Summary

    Capital budgeting is a critical process for evaluating long-term investments in organizations, ensuring strategic alignment and effective resource allocation.

    Learning Practice

References

Chapter_25_Capit.pdf

Class Notes

Memorization

What we have learnt

  • Capital budgeting is the pr...
  • Techniques like NPV and IRR...
  • Capital budgeting decisions...

Final Test

Revision Tests