Answer to Question #295052 in Accounting for Getahun

Question

discuss capital budgeting techniques

- Investment

- payback period

- Net present value

Answer 1

Investment refers to an external venture or project that requires the capital budgeting process to realize potential returns or meet the expected target benchmark.

The payback period in capital budgeting refers to the time needed to regain the capital outlay expended in a particular investment, or to reach the break-even point, where the expense outlay equals the returns from the investment.

Net present value is the monetary value of future cash flows by today. It is computed as the difference between present value of cash inflows and present value of cash outflows over a specified time period. In finding NPV, the expected future cash flows are discounted with a discount rate.