To support growth strategies and combat competition with rivals, businesses seek external capital to further develop products and services in hopes to create new sales opportunities. Since capital investment often involves a huge money investment, longer time engagement and risks of uncertainties, any decision shall not be taken lightly and shall be carefully evaluated before putting money to start a long-term project. The goal is to ultimately make the right accept/reject decision. Respond to the following in a minimum of 175 words:
Discuss criteria and techniques used to evaluate a capital project. Which criteria and techniques do you consider the most useful? As a financial manager, would you use the same criteria or evaluation techniques for any capital project? Why or why not?
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The capital investment attractiveness needs to consider the time value of money, and expected future cash flows from investment, cash flows uncertainty and performance index applied in choosing a project. There are several methods used in evaluating a capital project. Payback period approach entails calculating the period a project will take before recouping the initial investment. The smaller the payback time, the better the project. Another technique is the net present value where the rate of return applied in the calculations depends on the cost of borrowing of the investor or the return the investor expected for the money. The viability of a project is known by looking at…
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