Module+19000+Summary+and+Conclusions

This module discusses evaluation of long-term capital investment projects that include independent projects and mutually exclusive projects. The nondiscounting models and discounting models are presented because both approaches are useful in capital investment analysis. The concepts of payback period, accounting rate of return, internal rate of return, and net present value are discussed in relation to capital budgeting. In evaluating mutually exclusive projects, the NPV model correctly identifies the best investment alternative and, thus, should be used. - Non-discounting methods: easy and popular, but ignore time value of money: - Discounting methods: complex but consider the time value of money
 * Payback period method: calculate the years required to recover the cost of investment
 * Accounting rate of return method: measures the return on a project in terms of income
 * Net present value method: incorporates the concept of discounting cash inflows and outflows
 * Internal rate of return method: the interest rate that sets the project’s NPV at zero