When a company chooses a new product to introduce to the market, then finance's involvement involves a capital budgeting decision.
What is capital budgeting?
- Investors estimate the worth of new investment projects using capital budgeting.
- Payback period (PB), internal rate of return (IRR), and net present value (NPV) are the three methods of project selection that are most frequently used (NPV).
- How long it would take a business to generate enough cash flow to recoup the initial investment is determined by the payback time.
- The predicted return on a project is measured by its internal rate of return; if it exceeds the cost of capital, the project is good.
- The net present value, which compares a project's profitability against alternatives, is likely the most useful of the three techniques.
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