Capital Investment Appraisal Technique

Capital investment appraisal is a branch of budgeting and planning of a firm long term and short term investment for a specific period of time. There are a various components of a capital appraisal when conducted for a project. The capital investment appraisal technique involves appraisal of property, Research and development involved in the project, equipment, material cost and other related factors.

There are a number of capital investment appraisal techniques that are listed as under:-

Net Present Value

Accounting Rate of Return

Internal Rate of Return

Adjusted Present Value

Equivalent Annuity

Pay Back Period

Profitability Index

Discounted Pay Back Period

Real Option Analysis

The major purpose of these techniques is to rate and compare different projects and select the project that is appropriate for the company in terms of costs, overhead and the profit generated by this project. With the help of these techniques the financial viability of the project is estimated. The selection of the technique used to appraise the project is selected by the stockholders, capital investors and decision makers of the business. In these techniques the long term goals are compared with the short term profit and the project that is best in terms of return and profits are selected for implementation.



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