Capital Budgeting

a.      Net Present Value (NPV)

Net Present Value (NPV) denotes the worth of all imminent cash flows occurring over the shelf life of an investment. It provides estimate values between the present worth of cash inflows and outflows; thus, it compares similar projected investments (Srithongrung et al., 2019). NPV analysis is an important valuation that is popular among accounting and finance professionals since it lets them determine the value of a new venture, capital project, investment security, business, and anything that generate revenue. However, according to Nowicki (2018), NPV relies on an assumption regarding future events; for that reason, its projections can be flawed.

b.      Payback Period

In corporate finance, the payback period describes the amount of time a firm takes to recover the cost of a financial outlay. In essence, according to Nowicki (2018), it refers to the maturity date of investment. In most cases, investors focus on the payback period to determine the desirability of a business venture, hence why shorter paybacks entice more investors. The payback period enables financial analysts to value different operational projects or investments, determining the most profitable ventures that a company can undertake. The payback period formula is:

The payback period = Cost of the investment divided by the annual cash flow

c.       Average Accounting Return (AAR)

AAR is a model that determines the percentage rate of return a business anticipates to obtain from an investment or asset, compared to the initial cost of the venture. According to

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