How would one determine the criteria to rank capital budgeting decisions
How would one determine the criteria to rank capital budgeting decisions
Solution
There are different methods are availble to rank capital budgeting decision which are as under :
1) NET PRESENT VALUE (NPV) : HIGHER THE NPV , THE MORE ATTRACTIVE THE INVESTMENT PROPOSAL.
2) INTERNAL RATE OF RETURN (IRR) : THE HIGHER THE PROJECT IRR, THE MORE DESIRABLE IT IS TO UNDERTAKE THE PROJECT
3) PROFITABILITY INDEX (PI) : HIGHER THE PROFITABILITY INDEX, BETTER THE INVESTMENT PROPOSAL.
4) PAY BACK PERIOD (PBP) : SHORTER THE PBP OF PROJECT, BETTER THE PROPOSAL.
5) ANNUAL RATE OF RETURN (ARR) : HIGHER THE ARR OF PROJECT, BETTER THE PROPOSAL.
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How would one determine the criteria to rank capital budgeting decisio.docx
1. How would one determine the criteria to rank capital budgeting decisions
How would one determine the criteria to rank capital budgeting decisions
Solution
There are different methods are availble to rank capital budgeting decision which are as under :
1) NET PRESENT VALUE (NPV) : HIGHER THE NPV , THE MORE ATTRACTIVE THE
INVESTMENT PROPOSAL.
2) INTERNAL RATE OF RETURN (IRR) : THE HIGHER THE PROJECT IRR, THE MORE
DESIRABLE IT IS TO UNDERTAKE THE PROJECT
3) PROFITABILITY INDEX (PI) : HIGHER THE PROFITABILITY INDEX, BETTER THE
INVESTMENT PROPOSAL.
4) PAY BACK PERIOD (PBP) : SHORTER THE PBP OF PROJECT, BETTER THE
PROPOSAL.
5) ANNUAL RATE OF RETURN (ARR) : HIGHER THE ARR OF PROJECT, BETTER THE
PROPOSAL.
