BUS550-WESTCLIFF UNIVERSITY-Financial Management Course-Discussion Question 4

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BUS550WESTCLIFF UNIVERSITY1000APA

Discussion Question 4:-

Please answer each of the following questions in detail and provide in-text citations in support of your argument. Include examples whenever applicable. Make sure to provide examples for each of the questions below. 
a.       Describe and explain the significance of each of the following: payback period, internal rate of return (IRR), modified internal rate of return (MIRR), net present value (NPV), and profitability index (PI). Explain. Provide examples for better clarity.
b.      Discuss the notions of conventional and nonconventional cash flows in capital budgeting. Which investment evaluation criteria would you use for unconventional cash flows and why? Provide a fictitious unconventional cash flow example and apply the payback period, NPV, IRR, MIRR, and PI methods to your example. Interpret the results.

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  1. Susan White
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    Capital budgeting is a method of evaluating different investment options available. There are different tools used in it like payback period, internal rate of return (IRR), modified internal rate of return (MIRR), net present value (NPV), and profitability index (PI). The payback period method tells us the number of years the project will take to pay back the amount invested in the project. For example, if the desired time for project completion is 4 years and the payback period comes to 5 years, which means that it would take 5 years to recover the amount invested, then the project should not be accepted. Its significance is that it takes into account the concept of time value of money. The net present value discounts all the future cash flows to the present value using a discount rate. It is the most commonly used method.

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