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basic assumptions of cost of capitalthe cost of capital is a dynamic concept affected by a multiplicity of economic and firm factors and assumes the
cost of capitala projects cost of capital is the smallest amount of acceptable rate of returnrequired rate of return on funds committed to the
discounted pay back period dpbp the discounted payback period is the number of periods taken in recovering the investment outlay on the present value
profitability index pi it is a ratio of the present value of the total cash benefits to the present value of the net cash outlay the higher the
internal rate of return irr this rate attempts to find the earnings rate which equates the current value of the streams of earnings to the investment
net present value npv in this technique future cash flows are discounted to the present and then compared with the investment outlay the basic
modern discounting cash flow techniques these methods generally are of more use to businesses in their investment decisions they take into account
advantages it is easy to calculate and catch with the help of this technique projects can be ranked in terms of their economic merits without much of
accept-reject rulethe decision rule is to accept the project if the computed payback period is less than the standard if not reject it while
pay back period pbp this is the most popular method employed by industrial practitioners for ranking investment projects this is described as the
advantages of arr it is simple to calculate and easy to catch with the help of this technique direct comparisons among proposed projected of varying
traditional capital budgeting techniquesthese techniques are usually very simple and easily catchable but the fundamental drawback of these
features of capital budgeting decisions1 existence of potentially large anticipated profits2 involves
meaning of capital budgetingdecisions relating to irreversible commitment of funds to projects whose profits are to be reaped over a time longer
compounding technique is the method of calculating the future values of cash flows and involves calculating compound interest under this process
time value of moneytime value of money can be described as the value of a unit of money at different time periods it involves that the value of a
risk return relationshipa business operates in a market environment which is not within its control it is exposed to several dangers from the
functions responsibilities challenges facing the finance managertodays finance manager is facing a lot of challenges which are the direct result of
types of finance functions decisionsthe most main decisions in finance relate to procuring funds investing them in profitable projects or assets
scope of finance functionin several businesses based on the complexity and size of financial decision-making the scope of finance function may be
functional areas of financial managementthe scope of financial management is all pervasive and covers approximately all the functional areas of an
general functionsseveral functions of financial management currently range from planning of funds to distribution of earnings and also are extend
aim of finance functionthe fundamental aims of a modern finance function are acquiring enough funds when required at lower cost proper use of funds
classification of sources of financein the market there are several sources of finance with conflicting risk characteristics and with conflicting
definition of financial managementthe term financial management has been described by management experts in several ways reflecting the duties and