How would you respond to this post?

Although many capital projects may benefit the business, due to capital budget limitations, the practice of capital rationing, or choosing the capital projects that rank with the best projected return without exceeding the total capital budget are approved (Wong, 2000). There a several methods used to evaluate projects for capital budget rationing including net present value (NPV), internal rate of return (IRR), and payback. NPV reflects the difference between a companys cash inflows and its present value of cash outflows over a given time period. This is expressed in dollars. This allows for estimates of future project cash flows and use of discount adjustments over time. IRR is an estimate of the profitability of potential capital investments by percentage value excluding capital costs and inflation. It is a single number that management may use to determine whether a project meets the companys acceptance criteria, but is does not adjust for discount rate, which makes it less accurate for long term investments (Investopedia, 2019). The payback method is the simplest method to evaluate capital rationing. It is a measure of the period of time it will take to payback the amount of the initial investment (Byrd, Hickman, & McPherson, 2013). After review of each method, the best method for use in capital rationing is NPV. NPV allows for a ranking system of all proposed projects. Those projects can then be ranked and evaluated for the best projected performance above zero within the thresholds of the capital budget. NPV unlike the other methods also allows for adjustments to discounts for long term projects to allow more true measurement of the projects performance.