Abstract
Perhaps the most difficult hurdle which companies come across is the selection of the project which is beneficial to the organization in the long-run and also increases the present value of the shareholders. This is where Capital Budgeting comes into play. Capital Budgeting is one of the most important areas of financial management. This paper gives an overview of what capital budgeting is, what different types of techniques comes under capital budgeting and how to represent capital budgeting technique algorithmically. In this paper we also throw some light on what the results of various capital budgeting techniques will be if any banking organization follows these techniques and compare those results. These techniques namely as Payback Period (PP), Average Rate of Return (ARR), Net Present Value (NPV), Profitability Index (PI) and Internal Rate of Return (IRR) are used to evaluate projects.
Highlights
AlgorithmAn organizaton’s success or failure depends on capital budgeting decisions
Capital budgeting decisions among several costly long-term investments play a profound impact on the organization and long-term performance
The Payback Period is 2 years 10 months and 23 days i.e. the initial investment can be recovered in the calculated time
Summary
AlgorithmAn organizaton’s success or failure depends on capital budgeting decisions. Capital budgeting decisions among several costly long-term investments play a profound impact on the organization and long-term performance. A capital budgeting decision can be stated as the process that companies use for making decisions on long-term projects. Such type of decisions are generally taken in line with the goal of maximizing shareholders value. A firm’s investment decisions would generally include expansion, acquisition, modernisation and replacement of long-term assets. Capital budgeting involves various techniques which give a clear picture about which project is profitable. When a project is finalized, initial investment is made and it is expected that future cash flows are calculated and discounted to the present value. If all the expected future discounted cash flows when combined together is greater than initial investment the project is said to be profitable
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