In addition to the financial aspects of the capital investment decision there are also many other areas which warrant attention such as: Technical: (a) The need for technical superiority. (b) Flexibility and adaptability. (c) Ease of maintenance. (d) Operational considerations, e.g., need to restrain/recruit personnel. (e) Servicing arrangements. (f) Manuals provided for operating and servicing. […]

# Tag Archives | Capital Budgeting

## Top 7 Investment Appraisal Techniques | Capital Budgeting

The following points highlight the top seven investment appraisal techniques. The techniques are: 1. Payback Period Method 2. Accounting Rate of Return Method 3. Net Present Value Method 4. Internal Rate of Return Method 5. Profitability Index Method 6. Discounted Payback Period Method 7. Terminal Value Method. Technique # 1. Payback Period Method: The payback […]

## Capital Rationing: Meaning and Factors

In this article we will discuss about:- 1. Meaning of Capital Rationing 2. Factors Leading to Capital Rationing 3. Situations of Capital Rationing. Meaning of Capital Rationing: Capital rationing is a situation where a constraint or budget ceiling is placed on the total size of capital expenditures during a particular period. Often firms draw up […]

## Top 7 Investment Appraisal Techniques | Capital Budgeting

The following points highlight the top seven investment appraisal techniques. The techniques are: 1. Payback Period Method 2. Accounting Rate of Return Method 3. Net Present Value Method 4. Internal Rate of Return Method 5. Profitability Index Method 6. Discounted Payback Period Method 7. Terminal Value Method. Technique # 1. Payback Period Method: The payback […]

## Cost of Capital: Definition, Importance and Aspects

After reading this article you will learn about Cost of Capital:- 1. Definitions and Concept of Cost of Capital 2. Relevance, Significance and Importance of Cost of Capital 3. Aspects. Definitions and Concept of Cost of Capital: Cost of Capital may be defined according to the following two terms: (a) Under operational terms and (b) […]

## Cost of Capital: 6 Types of Cost of Capital

This article throws light upon the six types of cost of capital. The types are: 1. Explicit Cost and Implicit Cost 2. Future Cost and Historical Cost 3. Specific Cost 4. Average Cost 5. Marginal Cost 6. Overall Cost of Capital. Type # 1. Explicit Cost and Implicit Cost: The explicit cost of any sources […]

## Top 3 Methods for Computation of Cost of Debt

This article throws light upon the top three methods for computation of cost of debt. The methods are: 1. Debt Issued at Par 2. Debt Issued at a Premium or at a Discount 3. Cost of Redeemable Debt. Method # 1. Debt Issued at Par: The method of computation for ascertaining cost of debt which […]

## Capital Budgeting: Importance, Types and Planning Period

After reading this article you will learn about Capital Budgeting:- 1. Importance of Capital Budgeting 2. Types of Capital Budgeting 3. Planning Period. Importance of Capital Budgeting: Capital budgeting decisions have given the primary importance in financial decision-making since they are the most crucial and critical business decisions and they have significant impact on the […]

## Top 2 Sources of Cost of Equity Capital

This article throws light upon the top two sources of cost of equity capital. The sources are: 1. New Issues 2. Cost of Retained Earnings. Source # 1. New Issues: The computation of cost of equity share capital is, no doubt, a difficult and controversial task since different authorities have conveyed different explanations and approaches […]

## How to Handle Risk Factor of Capital Budgeting ?

Here are some of the techniques which can handle the risk factor of capital budgeting:- 1. Risk-Adjusted Discount Rate 2. Certainty-Equivalent 3. Quantitative Techniques 4. Probability Assignment 5. Standard Deviation 6. Co-Efficient of Variation 7. Sensitivity Analysis 8. Decision Trees. Technique # 1. Risk-Adjusted Discount Rate: Generally, against risk the businessman requires a premium over […]