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Define the most important capital budgeting techniques. Name at least two capital budgeting techniques (for example, NPV, IRR, Payback Period, et cetera) and describe how they are used to arrive at investment decisions.
This week’s discussion question looks at capital budgeting and risk analysis. I always say that perception is everything as many of you will take this question in different concepts. Why is capital budgeting important?
I have to say that NPV and the Payback Period have been the most important for me. This is because knowing the present value makes a difference as a dollar today is worth more than a dollar tomorrow. I tend to invest when small business owners are trying to get their business off the ground. The payback period is essential as the longer you go without getting paid the more risk you are taking as you are most likely not going to get paid if the time frame is too long. Not to mention the longer you take to get paid the more money you are actually losing. I am curious to know how many of you are investors? How much of a risk-taker are you? For those that do not invest or that are not really risk-takers, there are apps that will help you that I can recommend.
Here is a visual of the techniques that we shall discuss.
Since the pandemic, companies were forced to change the way they think and handle their finances. I think you will find the following article interesting as well.