00:01
Hello students, here is a question.
00:02
You are a finance manager for a major utility company.
00:05
And here the question says that respond to the following minimum of 175 words and think about some of the capital budgeting technique you might use for some upcoming projects and discuss at least two capital budgeting techniques and how your company can benefit from the use of a tool.
00:23
Compare your approaches with other students response and how were they similar or different.
00:27
This might use a different approach said by your classmates.
00:31
So this was the question.
00:33
So let us start solving this.
00:35
So here the different capital budgeting techniques will be different capital budgeting techniques are the first thing is payback period and the other thing is discounted payback period npv irr modified irr and the next is profitability index.
01:42
So the payback the payback period is a period in which initial investments are recovered.
01:48
If actually ppp is greater than expected ppp.
01:52
So project will be rejected.
01:54
If actual ppp is less than expected ppp, then project will be accepted.
02:00
It ignores the cash flow after ppp and the time value of money.
02:05
So the second thing is discounted payback period discounted payback period is a period in which initial investment is recovered after considering the time value of money.
02:15
If actual discount is ppp is greater than expected discount minus project will be sorry expected ppp then project will be rejected actual ppp is lesser than the expected ppp.
02:30
If the project will be accepted it ignores the cash flow after ppp but consider the time value of money and the third thing is net present value npv.
02:41
So if npv is greater than zero project is accepted npv is equal to zero in difference point can project can be accepted or rejected...