Student Solution

-->

"Education is the most powerful weapon which you can use to change the world”
– Nelson Mandela

1 University

1 Course

1 Subject

Chapter 11 Discussion 1

Chapter 11 Discussion 1

Q The goal of this discussion is to discuss the different methods of capital budget analysis and to recognize the limitations of these different methods of analysis so that the best possible outcome can be determined. Keep in mind that this discussion question will help prepare you for future exams, so it is important that you understand the information and actively participate in discussions. To supplement your learning and enhance your understanding, you may also have to conduct research outside of course provided material. Discussion Question Requirements: 1. Your discussion question response must include a minimum of three paragraphs in length and is due no later than Thursday by 11:59 pm EST. o If the Thursday by 11:59 pm EST is missed, you will still be required to provide the initial post to participate in peer discussion and earn partial credit for the assignment. 2. Pick one peer’s post and review it. Then comment in no less than one paragraph why you found the information helpful, informative, etc. no later than Sunday by 11:59 pm EST. You must present new ideas and/or thoughts, merely stating that you agree/disagree is not enough to earn full points. 3. Students will not be able to see peers' postings before posting their initial post. Once you make your initial post, you are not permitted to edit. If edits are needed, you will need to reply to the original post and make the corrections there. 4. A paragraph is considered a minimum of 4-6 sentences. 5. Cite all sources - you must provide the exact link to the reference. Please keep in mind that citing sources does not mean you can copy and paste information from the source and use it as your own. You also cannot only change a few words from a source; all work must be in your own words. If copying/pasting is found or the submission is not in your own words, you will receive a zero, with no exceptions. This also includes commenting on peers' posts. 6. Use tables, if needed to make your posts directly into the discussion area. Do not post as an attachment. In your own words, discuss the payback period, NPV (net present value), and IRR (internal rate of return) methods for capital budgeting analysis. What result does each method provide the user? What are the limitations of each of these methods? Which method would you find most useful in making the best investment decisions for your business and why?

View Related Questions

Solution Preview

Payback Period- The payback period is a method that is typically used by investors or corporations and is the calculation of how much time would be required to regain the amount for what was the initial investment. This type of investment is utilized when liquidity becomes concerning. This method does have an advantage because the calculation is easier because the cash flow has been forecasted and established. There is of course a negative side to using the payback period method which would be the time value of money. Net Present Value- The NPV is the difference between the present value of cash inflows and PV of cash outflows over a period of time.