In this Video We Will Discuss Capital Budgeting all Concepts, Problems and Examples for CA Inter & CA IPCC and This Video will also Helpful for B.com, BBA, M.com, CS, CMA, and UGC-net, UPSC, SSC, Banking, PNB SO, JAIIB AFB and Other Commerce Courses.
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Topic covered:-
00:00 Introduction.
00:24 What is the purpose of capital budgeting?
03:41 Relative Manner.
11:40 Present value formula.
20:51 How to calculate PV factor.
29:47 Computation of Inflow.
40:09 In case inflows of all the year are same.
44:14 Practice Questions.
01:01:27 Important Questions.
01:14:24 Profitability Index.
01:18:57 Practice Question of profitability index.
01:20:45 Internal rate of return.
01:28:12 Examples.
Topic Covered:
Absolute comparison
What is the present value and how to compute it
Example to understand concept of present value part 1
Example to understand concept of pv factor part 2
What is net present value
How to compute inflows
Numerical on cash inflows
Question on NPV
Question on NPV self practice
Important numerical of NPV
Profitability index
Question on profitability index
What is internal rate of return (IRR)
Relationship between IRR and NPV
How to compute internal rate of return
Question on internal rate of return
Question on internal rate of return
Combined question on NPV and internal rate of return
Combined question of NPV and IRR very important
Payback period
Discounted pay back period
Accounting rate of return
Modified internal rate of return
Capital rationing projects with different investment amount
Projects with unequal lives replacement chain method
Projects with unequal life equivalent annualized cash flows very important
Capital budgeting is the process that a business uses to determine which proposed fixed asset purchases it should accept, and which should be declined. This process is used to create a quantitative view of each proposed fixed asset investment, thereby giving a rational basis for making a judgment.
Capital Budgeting Methods
There are a number of methods commonly used to evaluate fixed assets under a formal capital budgeting system. The more important ones are:
Net present value analysis. Identify the net change in cash flows associated with a fixed asset purchase, and discount them to their present value. Then compare all proposed projects with positive net present values, and accept those with the highest net present values until funds run out.
Constraint analysis. Identify the bottleneck machine or work center in a production environment and invest in those fixed assets that maximize the utilization of the bottleneck operation. Under this approach, a business is less likely to invest in areas downstream from the bottleneck operation (since they are constrained by the bottleneck operation) and more likely to invest upstream from the bottleneck (since additional capacity there makes it easier to keep the bottleneck fully supplied with inventory).
Payback period. Determine the period required to generate sufficient cash flow from a project to pay for the initial investment in it. This is essentially a risk measure, for the focus is on the period of time that the investment is at risk of not being returned to the company.
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