Capital of busniess
The key involved in determining whether a project is worthily or not are:
1. Estimate the costs and benefits of the project
2. Assess the risk of the project
3. Calculate the cost of capital
4. Compute the criteria of merit and judge whether the project is good or bad.
For pedagogic purposes, we find it more convenient to start with a discussion of criteria of merit, referred to as investment criteria or capital budgeting techniques. A familiarity with these criteria will facilitate an easier understanding of costs and benefits, risk analysis, and cost of capital.
There are several criteria that have been suggested by economists, accountants, and others to judge the worthwhileness of capital projects. More than thirty criteria have been proposed, in the extensive literature on this subject. Some are general and applicable to a wide range of investments, others are specialized and suitable for certain types of investments and industries.
The important investment criteria, classified into two broad categories discounting criteria and non discounting criteria are shown.
This discusses these criteria in some detail. In addition, it looks at how investment appraisal is done in practice, both in India and a board. It is organized into eight sections as follows:
1. Net present value
2. Benefit cost ratio
3. Internal rate of return
4. Urgency
5. Payback period
6. Accounting rate of return
7. Assessment of various methods
8. Investment evaluation in practice.
1. Estimate the costs and benefits of the project
2. Assess the risk of the project
3. Calculate the cost of capital
4. Compute the criteria of merit and judge whether the project is good or bad.
For pedagogic purposes, we find it more convenient to start with a discussion of criteria of merit, referred to as investment criteria or capital budgeting techniques. A familiarity with these criteria will facilitate an easier understanding of costs and benefits, risk analysis, and cost of capital.
There are several criteria that have been suggested by economists, accountants, and others to judge the worthwhileness of capital projects. More than thirty criteria have been proposed, in the extensive literature on this subject. Some are general and applicable to a wide range of investments, others are specialized and suitable for certain types of investments and industries.
The important investment criteria, classified into two broad categories discounting criteria and non discounting criteria are shown.
This discusses these criteria in some detail. In addition, it looks at how investment appraisal is done in practice, both in India and a board. It is organized into eight sections as follows:
1. Net present value
2. Benefit cost ratio
3. Internal rate of return
4. Urgency
5. Payback period
6. Accounting rate of return
7. Assessment of various methods
8. Investment evaluation in practice.