25. Capital Budgeting Techniques

Try these first

1. 1.

   What is capital budgeting?

   Hint

   Think about investment planning.

2. 2.

   Name two traditional capital budgeting techniques.

   Hint

   Relate them to basic evaluations.

3. 3.

   What is the formula to calculate the Payback Period?

   Hint

   Think about recovering your initial costs.

4. 4.

   True or False: NPV is the difference between cash inflows and outflows.

   Hint

   Consider the flow of money over time.

5. 5.

   A company invests $500,000 in a new product line with expected annual cash inflows of$100,000 for 6 years. What is the Payback Period?

   Hint

   What does it take to break even?

6. 6.

   Evaluate whether to invest in a project with an initial outlay of $200,000, expected cash inflows of$50,000 each year for 5 years, and a discount rate of 8%. Calculate the NPV.

   Hint

   Consider discounting cash flows back to present value.