Long term Investment Decision: CapitalS Budgeting Technique
The financial manager must apply appropriate decision techniques to assess whether proposed investment projects create value. Net present value (NPV) and internal rate of return (IRR) are the generally preferred capital budgeting techniques. Both use the cost of capital as the required return. The appeal of NPV and IRR stems from the fact that both indicate whether a proposed investment creates or destroys shareholder value. NPV clearly indicates the expected dollar amount of wealth creation from a proposed project, whereas IRR only provides the same accept-or-reject decision as NPV. As a consequence of some fundamental differences, NPV and IRR do not necessarily rank projects in the same way. NPV is the theoretically preferred approach. In practice, however, IRR enjoys widespread use because of its intuitive appeal. Regardless, the application of NPV and IRR to good estimates of relevant cash flows should enable the financial manager to recommend projects that are consistent with the firm’s goal of maximizing shareholder wealth.
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- Introduction to Managerial Finance: The role of Managerial Finance, The Financial Market Environment
- The Financial Market Environment
- Financial Tools: Financial statements and Ratio Analysis
- Financial Tools: Financial statements and Ratio Analysis
- Financial Tools: Cash Flow and Financial Planning
- Financial Tools: Cash Flow and Financial Planning
- Financial Tools: Time Value of Money
- Financial Tools: Time Value of Money
- Financial Tools: Time Value of Money
- Financial Tools: Time Value of Money
- Valuation of Securities: Interest Rates and Bond Valuation
- Valuation of Securities: Interest Rates and Bond Valuation
- Valuation of Securities: Stock Valuation
- Valuation of Securities: Stock Valuation
- Valuation of Securities: Stock Valuation
- Valuation of Securities: Stock Valuation
- Risk and the Required Rate of Return: Risk and Return
- Risk and the Required Rate of Return: Risk and Return
- Risk and the Required Rate of Return: Risk and Return
- Risk and the Required Rate of Return: Risk and Return
- Risk and the Required Rate of Return: Risk and Return
- Risk and the Required Rate of Return: The Cost of Capital
- Risk and the Required Rate of Return: The Cost of Capital
- Risk and the Required Rate of Return: The Cost of Capital
- Long term Investment Decision: CapitalS Budgeting Technique
- Long term Investment Decision: Capital Budgeting Techniques
- Long term Investment Decision: Capital Budgeting Techniques
- Long term Investment Decision: Capital Budgeting Techniques
- Long term Investment Decision: Capital Budgeting Cash Flows
- Long term Investment Decision: Capital Budgeting Cash Flows
- Long term Investment Decision: Capital Budgeting Cash Flows
- Long term Investment Decision: Capital Budgeting Cash Flows
- Chapters 32
- Department Noon Business School
- Teacher
Shahid Mahmood