
Concept explainers
To make capital budgeting decision, it is required that the asset and or projects are properly evaluated. This is done as follows:
Estimated the cash flows which is expected to be generated from the project or asset
Evaluate the riskiness of the project and determine an appropriate discount rate specific for the project
Determine the
Here,
Expected net cash flow in Period t is “
Required rate of return is “r”
Now, compare the present value of future expected cash flows with the cost of the project. If the present value of
A capital budgeting project will generate $104,400 per year for four years. The two required

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- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
