FIN571 Reflection- Capital Budgeting Techniques

FIN571 Reflection- Capital Budgeting Techniques

Capital budgeting is a tool widely applied in selecting from among alternatives of projects that are being considered for investment. Managers use various capital budgeting methods to evaluate different projects before making investment decisions. For my company, I would select the net present value (NPV) and internal rate of return (IRR) methods to use for my company’s capital budgeting (Siziba & Hall, 2021). The net present value compares the present value of cash inflows that are to be realized from a project with the present value of cash outflows. The decision rule used under this method is to accept all projects that have a present positive value and reject the projects with negative net present values. The net present value method is highly recommended and recognized for considering the time value of money. The use of the internal rate of return approach gives a company the ability to select the rate of return that projects must meet if they will be accepted. Essentially, the internal rate of return represents the expected rate of return in which a company will not make a loss, and the net present value will be equal (Alles et al., 2021). The use of these methods will benefit my company in various ways. First, the methods will guide the decision-making regarding investments. The investment will be made in those projects that will lead to company profits. Second, the methods will help the company identify projects that are not worth undertaking and, thus, help the company avoid making losses by engaging in risky projects.

References

Alles, L., Jayathilaka, R., Kumari, N., Malalathunga, T., Obeyesekera, H., & Sharmila, S.  (2021). An investigation of the usage of capital budgeting techniques by small and medium enterprises. Quality & Quantity, 55(3), 993-1006.

Siziba, S., & Hall, J. H. (2021). The evolution of the application of capital budgeting technique in enterprises. Global Finance Journal, 47, 100504.

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You are a Finance Manager for a major utility company.

Respond to the following in a minimum of 175 words:

Think about some of the capital budgeting techniques you might use for some upcoming projects.

FIN571 Reflection- Capital Budgeting Techniques

Discuss at least 2 capital budgeting techniques and how your company can benefit from the use of these tools.
Compare your approaches to other students’ responses. How were they similar or different? Why might you use the different approaches shared by your