Capital Budgeting

Net cash outflow

Pay back peroid =
Annual cash inflow
Or,

NCO - C
Pay Back Peroid = A +
D
Here,
A = The year in which the cumulative net cash flow is
nearer to NCO.
NCO = Net Cash Outlay.
C = Cumulative Net Cash Flow of Year A.
D = Net Cash Flow of the Year following the Year A.

 A1 A2 A3 An 
NPV =  + + + .............. + -C
 (1 + R)
1
(1 + R) (1 + R)
2 3
( 1 + R ) n 
C
IRR = A + ( B − A)
D
Here,
IRR = Internal Rate of Return
A = Lower Discounting Rate
B = Higher Discounting Rate
C = Net Present Value at Lower Discount Rate
D = Difference Between the NPV Value at Higher
Discounting Rate & at Lower Discount Rate.

Average Annual Net Income

Average Rate of Return (ARR) = × 100
Average Investment

Present Value of All Net Cash Benefits

Profitability Index (PI) =
Pr esent Value of Initial Investment

Cost - Salvage Value

Depreciation Per Year =
Expected Life

Created By,
Mahmudul Hoque Chowdhury
ID # 503, Daffodil Institute of IT (DIIT)