Capital budgeting, also known as capital investment appraisal or investment appraisal, is the process by which an organization evaluates different investment projects to determine which is likely to provide the highest financial return.
Capital investment appraisal is a process used by companies to evaluate and compare potential large-scale investment opportunities to determine their viability and profitability.
The Certainty Equivalent Method is a risk analysis technique in capital budgeting, where particularly risky returns are expressed in terms of the risk-free rate of return that would be their equivalent.
Cost-Benefit Analysis is a technique used in capital budgeting that evaluates the estimated costs against the expected benefits of a proposed investment.
In capital budgeting, the cutoff point is referred to as the minimum acceptable rate of return on investments that an enterprise mandates for its projects. It essentially serves as the threshold for determining the viability of a project.
Discounted Cash Flow (DCF) is a financial valuation method used to appraise investments, architectures in capital budgeting, and other expenditure decisions by analyzing the predicted cash flow stream (incomes and outflows) and discounting them to present values using a specific cost of capital or hurdle rate.
Discounted Payback Method is a method of capital budgeting in which managers calculate the time required for the forecasted discounted cash inflows from an investment to equal the initial investment expenditure, considering the time value of money.
Discounted Present Value (DPV) is a financial metric used to determine the current worth of a series of future cash flows, discounted back to their present value. It helps in evaluating the profitability and feasibility of investments and projects.
Economic appraisal is a method of capital budgeting that uses discounted cash flow techniques to determine the preferred investment by discounting the expected annual economic costs and benefits over the project's life. This method is particularly used for assessing governmental or quasi-governmental projects such as road, railway, and port developments.
The hurdle rate is the minimum rate of return on an investment or project that a manager or company seeks to achieve before it generally discusses or explores the project. This rate is also known as the required rate of return or the benchmark rate.
An in-depth look at incremental cash flow, its significance in differential analysis, how it impacts decision-making, and real-life applications.
The overall cost of raising additional finance, reflecting the increased risks and required returns for equity and debt funders due to increased financing.
Investment appraisal, also known as capital budgeting, involves evaluating the financial viability of a potential investment or project. It assesses whether the investment will yield adequate returns to justify the initial outlay.
The mean return is a key metric in security analysis, representing the expected value or average of all possible returns on investments within a portfolio. It is also used in capital budgeting to determine the mean value of the probability distribution of possible returns.
Mutually exclusive projects refer to a set of project alternatives where the selection of one project precludes the inclusion of the others due to constraints such as land or resources. For instance, using a parcel of land to build a factory means it cannot be used for an office block.
A method of capital budgeting where the value of an investment is calculated by determining the total present value of all cash inflows and outflows minus the initial investment cost.
In capital budgeting, the payback period estimates the time required to recover the initial investment from cash inflows generated by the project. The major limitation of this method is that it does not consider cash flows after the payback period and, thus, it's not a reliable measure of the overall profitability of an investment.
The Payback Period Method is a capital budgeting technique that calculates the time required for projected cash inflows to equal initial investment expenditure, often used to gauge project risk.
The Profitability Index is a financial metric used to evaluate the profitability of an investment or project, calculated by dividing the present value of future expected cash flows by the initial investment.
In capital budgeting and portfolio management, the risk-adjusted discount rate is the discount rate used in calculations of present value to reflect the level of risk embodied in the cash flows being considered.
