If we have to generate the capital than what cost we have to

bear?
Whether we have to invest in any project or Not?

Capital Budgeting Techniques

Different methods from which we know that whether to invest any project or not?

Project Analysis?
Whether we get our initial investment.
If you invest in a project named Ali builders
You investment is of 1 lac.
After 4 years you get 70k back. No more amount you will get in future.
Return

Payback Period:
In how much time you will receive your initial investment and come to breakeven
point
Rida Builders.
At time zero if you invest 100,000 today.
You will get
10,000 1st year 10,000
27000 2nd year 37000
38000 3rd year 75000
40000 4th year 115000
49000 5th year.
Payback Period: 3 + 25000/40,000= 3+0.625= 3.625 years we will get our initial
investment back.
Suppose jazib Builders have a project to invest.
Anas agreed to invest in the project which cost is 760,000
Jazib promises with Anas that he will make the following payments
1 140,000 140,000
2 82000 222000
3 190000 412000
4 450000 862000
5 198000
6 213580

3+(348000/450000) = 3+0.77= 3.77 years

2.65 years payback period.

Discounted Payback Period

Jazib promises with Anas that he will make the following payments
Currently market interest rate is 8%
0 760000 760,000/ 1.08^0 760,000
1 140,000 140,000/ 1.08 129629
2 82000 82000/ 1.08^2 70301
3 190000 190,000/ 1.08^3 150828
4 450000 450,000/ 1.08^4 330763
5 198000 1980,000/ 1.08^5 134755
6 213580 231580/ 1.08^6 134592

DPBP= 5.483
Net Present Value (NPV)
Sum of all PV of cash inflows – Outflow
If your NPV is positive then accept the project if negative then
reject the project

Currently market interest rate is 8%

Initial Investment at time 0 760000
1. 140,000 140,000/ 1.08^1 129630
2. 82000 82,000/ 1.08^2 70301
3. 190000 190,000/ 1.08^3 150828
4. 450000 450000/ 1.08^4 330763
5. 198000 198,000/ 1.08^5 134755
NPV = 129630+70301+150828+330763+134755 – 760,000
NPV= 56278

Profitability Index : PV of Cash inflows/ Outflow = 816276/ 760,000 = 1.074

If your profitability index is greater than 1 then you will accept the project.
Using a 14% cost of capital, for each of the independent projects shown
in the following table, and indicate whether each is acceptable.

NPV of Project A -5135 Reject

NPV of Project C -83668 Reject
NPV of Project E 9961.5 Accept
PI of Project E 1.124

DPBP 7.33
Internal Rate of Return
FV= PV (1=i)n
1 500,000
2 100,000
3 120,000
4 140,000
5 160,000
6 180,000
7 200,000

Suppose I= 5% we get
500,000 is less then 746929
Suppose I = 10% so we get
500,000 = 629209
I is 16% Interest Low rate
521233 PV at Low rate
I = 20% interest high rate
464163 PV at high rate
PV at time zero 500,000