CAPITAL BUDGETING II: ADDITIONAL ASPECTS
TABLE Real Cash Flows a. Based on interpolation as per Table. b. Difference in NPV of Rs 73 (Rs 3.28,073 – Rs 3,28.000) between the two discount rates (nominal and real) is on account of rounding off the values. Both the approaches provide the same answer. It...
CAPITAL BUDGETING II: ADDITIONAL ASPECTS
INFLATION AND CAPITAL BUDGETING The capital budgeting results would be unrealistic if the impact of inflation is not correctly factored in the analysis. The cash flow estimate will not reflect the purchasing power. In other words, cash flows would as shown at inflated...
CAPITAL BUDGETING II: ADDITIONAL ASPECTS
Fallout of Capital Rationing Capital rationing limit is the amount to be spent on capital expenditure decisions. The firm may be such a limit primarily for two reasons : (i) there may be a paucity of funds and (ii) corporate managers/owners may be conservative and may...
CAPITAL BUDGETING II: ADDITIONAL ASPECTS
PROJECT SELECTION UNDER CAPITAL RATIONING The capital rationing situation refers to the choice of investment proposal under financial constraints in terms of a given size of capital expenditure budget.The project selection under capital rationing involves two stages:...
CAPITAL BUDGETING II: ADDITIONAL ASPECTS
Net Present Value Vs. Profitability Index In most situations, the NPV and PI, as investment criteria, provide the same accept and reject decision, because both the methods ate closely related to each other. Under the PI method, the investment proposal will be...
CAPITAL BUDGETING II: ADDITIONAL ASPECTS
Computational Problems Apart from inconsistency in the application or me reinvestment rate, the IRR method also suffers from computational problems. These may be discussed with reference to two aspects. Computation in Conventional Cash Flows It has been shown while...
