Net present value method is a common method. The net present value (NPV) of an investment is the difference between the market price and the investment cost. If the difference is positive, the investment is profitable. If it is negative, the investment will lose money, and the investment proposal will usually be rejected.
The internal rate of return method is actually closely related to the net present value method. Basically, it is the same method, but the expression is different. The internal rate of return method shows the expected rate of return of an investment more clearly and directly, which is easily accepted by operators and shareholders.
Extended data:
Characteristics of capital budget:
1, the process of capital budgeting,
2. Determine the decision-making objectives; Put forward various possible investment schemes;
3. Estimate the expected cash flow of various investment schemes;
4. Estimate the risk degree of expected cash flow and adjust the risk of cash flow accordingly;
5. Compare and choose the best investment scheme according to the selection methods.
The capital budgeting methods in management accounting include:
1, net present value method (NPV)
2. Internal rate of return
3. Profit index
4, payback period method (PP)
5. Accounting rate of return
6. Mutual exclusion and association of projects.
Capital budget, also known as constructive budget or investment budget, refers to the capital expenditure plan made by enterprises for better development and greater reward in the future. It is a budget that comprehensively reflects the source and application of construction funds. Expenditure is mainly used for economic construction, and income is mainly debt income.
References:
Baidu Encyclopedia-Capital Budget