A Summary of Capital Budgeting Techniques
E A G C EDIRISINGHE  FGS/02/25/01/2012/044
COURSE MBA 61043 CORPORATE FINANCE SECOND YEAR SEMESTER ONE – 2013
Master of Business Administration
Faculty of Commerce and Management Studies University of Kelaniya
Course Instructors
:
Dr.P.M.C. Thilkarathne Dr.D.K.Y. Abeyawardena
Corporate Finance  MBA 61043
CAPITAL BUDGETING TECHNIQUES
Faced with limited sources of capital, management should carefully decide whether a particular project is economically acceptable. In the case of more than one project,
management must identify the projects that will contribute most to profits and, consequently, to the value (or wealth) of the firm. Several alternatives exist for …show more content…
Internal Rate of Return The IRR is similar to the NPV, which considers the time value of money. An IRR (refer equation 2.2) is the true or effective interest yield generated by an investment over its life, and can be defined as the discount rate that equates the present values of the cash outflows to equal the present values of the cash inflows (Panday, 1999).
0
(
r)
Equation 1.2
Where, R C1 = = Rate of return Single cash flow after one flow
(Source – Panday, 1999)
University of Kelaniya
Page  4
Corporate Finance  MBA 61043
It has been justified that IRR is another DCF technique which takes account of the magnitude

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