Measuring Capital Budget Desirability
Review the Discussion Participation Scoring Guide.
Chapter 13 in the M: Finance textbook by Cornett, Adair, and Nofsinger discusses various criteria for calculating and analyzing the desirability of a capital budgeting project. This task is extremely important as these projects often entail very large cash outflows and may significantly determine the future profitability of the firm. Examine Chapter 13, with particular emphasis on each of the six capital budgeting techniques reviewed.
For this discussion post, assume the role of chief financial executive of a firm that is analyzing a major project that entails a large initial cash outflow at time point zero and has future expected cash inflows occurring over the next 10-year period.
- If you could select only three techniques to analyze this project's desirability, which three techniques would you select? Why?
- When analyzing a project's desirability, which factor do you believe is more important: the technique to analyze investment acceptability, or the use of the most accurate projections of cash flows? Why?