Understanding Capital Budgeting Decisions
Business organizations have to allocate funds judiciously towards long-term capital investments, to ensure good returns and shareholder value maximization. Small businesses and newly established ventures (startups) have very limited funds in the initial phase where the focus is on creating and nurturing customer base and brand identity. The financial priority of such entities is to rationalize the capital spending in order to earn positive return on investment.
A good understanding of how to measure and manage investment in long-term assets can enable entrepreneurs to keep control on funding estimates in successive phases of maturity and growth. This case slide is designed aims to explain fundamental concept of Payback Period and Net Present Value (NPV) to the students undergoing a Corporate Finance or Financial Management course.
Expected Learning Outcomes
- • Understand what are Capital Budgeting decisions of business organizations
- • Learn two important evaluation methods for accepting or rejecting a capital expenditure (long-term investment) proposal namely Payback Period and NPV
- • Learn about factors affecting the choice of evaluation technique for capital budgeting decisions
Case Positioning and Setting
The case slide can be used for an introductory course in Financial Management or Corporate Finance at Undergraduate level – To explain fundamental concept of Payback Period and Net Present Value (NPV)............