Budgeting and Strategic Planning An organization's financial plans should include budgets for both operating and for capital as discussed in previous section, on Budgeting. The budgeting process and good practices were also discussed in the previous sections, The Budgeting Processand Budgeting Practices.

Net Present Value NPV Net present value NPV of a project is the potential change in an investor's wealth caused by that project while time value of money is being accounted for. It equals the present value of net cash inflows generated by a project less the initial investment on the project.

It is one of the most reliable measures used in capital budgeting because it accounts for time value of money by using discounted cash flows in the calculation.

Net present value calculations take the following two inputs: Projected net cash flows in successive periods from the project. A target rate of return i. Where, Net cash flow equals total cash inflow during a period, including salvage value if any, less cash outflows from the project during the period.

Hurdle rate is the rate used to discount the net cash inflows. Weighted average cost of capital WACC is the most commonly used hurdle rate.

Calculation Methods and Formulas The first step involved in the calculation of NPV is the estimation of net cash flows from the project over its life. The second step is to discount those cash flows at the hurdle rate.

The net cash flows may be even i. When they are even, present value can be easily calculated by using the formula for present value of annuity. However, if they are uneven, we need to calculate the present value of each individual net cash inflow separately.

Once we have the total present value of all project cash flows, we subtract the initial investment on the project from the total present value of inflows to arrive at net present value. Thus we have the following two formulas for the calculation of NPV: When cash inflows are even:Capital expenditure, or CapEx, are funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment.

Fully updated and revised by international authorities on the topic, this new version of a classic and established text returns to its roots as a clear and concise introduction to this complex but essential topic in corporate finance. An organization's financial plans should include budgets for both operating and for capital as discussed in previous section, on alphabetnyc.com budgeting process and good practices were also discussed in the previous sections, The Budgeting Process, and Budgeting alphabetnyc.com this section we will discuss the terms and concepts involved in .

North South University is the first private university of Bangladesh, It was established in Approved by the University Grants Commission (UGC) of Bangladesh. An organization's financial plans should include budgets for both operating and for capital as discussed in previous section, on alphabetnyc.com budgeting process and good practices were also discussed in the previous sections, The Budgeting Process, and Budgeting alphabetnyc.com this section we will discuss the terms and concepts involved in creating the annual operating budget.

The term capital assets is used to describe assets that are used in operations and that have initial lives extending beyond a single reporting period.

Capital assets may be either intangible (e.g., easements, water (rights) or tangible (e.g., land, buildings, building improvements, vehicles, machinery, equipment and infrastructure).

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Capital Budgeting