The following information relates to three possible capital expenditure projects. Because of capital rationing only one project can be accepted.
The company estimates its cost of capital is 18 per cent.
(a) The payback period for each project.
(b) The accounting rate of return for each project.
(c) The net present value of each project.
(d) Which project should be accepted - give reasons.
(e) Explain the factors management would need to consider, in addition to the financial factors, before making a final decision on a project.
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Capital Rationing
Capital rationing is the act of placing restrictions on the amount of new investments or projects undertaken by a company. Capital rationing is the decision process used to select capital projects when there is a limited amount of funding available.... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of... Payback Period
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...
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