25.8. Capital Budgeting in Tech Companies

Try these first

1. 1.

   What is the primary purpose of capital budgeting?

   Hint

   Think about financial planning.

2. 2.

   Name one technique used in capital budgeting.

   Hint

   They are both methods for evaluating investments.

3. 3.

   What does NPV stand for?

   Hint

   Think about the net worth of cash today vs future.

4. 4.

   Is IRR a measure of monetary value?

   • True
   • False

   Hint

   Consider how rates view investments.

5. 5.

   A tech startup is considering two projects: Project A requires $30,000 initial investment with annual cash inflows of$10,000 for four years. Project B requires $25,000 initial investment with annual cash inflows of$7,000 for five years. Calculate both NPV (assuming a 12% discount rate) and determine which project is better.

   Hint

   Perform NPV for both projects and see which one yields a greater value.

6. 6.

   A company is looking at a new AI project expected to generate cash inflows of $20,000 per year for 5 years, with an initial investment of$50,000. How would they calculate IRR, and what considerations might affect this calculation?

   Hint

   Think about how cash flow variations impact the IRR computation.