The study is conducted to know the importance of capital budgeting decision and the techniques to evaluate the investment projects. There are a variety of discounted and non-discounted techniques of capital budgeting.
Discounted techniques considers present value factor, while non-discounted methods do not consider the time value of money.
After analyzing the pros and cons of all the techniques, it is concluded that the best method is net present value method and Internal Rate of return method. Pa back period is also widely used as it is simple and easy to understand and calculate. The literature review and past researches conducted also support this view.
Hence it is highly recommended to use NPV and IRR method in making the capital budgeting decisions. Also for small firms payback period method can be used for evaluation of replacement activity and for small expansion purposes.