The discounted cash flow technique calculates the cash inflow and outflow through the life of an asset. These are then discounted through a discounting factor. The discounted cash inflows and outflows are then compared. This technique takes into account the interest factor and the return after the payback period.

## What are the discounting techniques?

Discounting is **the process of determining the present value of a payment or a stream of payments that is to be received in the future**. Given the time value of money, a dollar is worth more today than it would be worth tomorrow. Discounting is the primary factor used in pricing a stream of tomorrow’s cash flows.

## What are the techniques used in capital budgeting?

There are several capital budgeting analysis methods that can be used to determine the economic feasibility of a capital investment. They include **the Payback Period, Discounted Payment Period, Net Present Value, Proﬁtability Index, Internal Rate of Return, and Modiﬁed Internal Rate of Return**.

## What is the principle of discounting?

According to the discounting principle, **the perceived role of a given cause in leading to a given effect is diminished when other possible causes for that event are also detected.**

## What are the five methods of capital budgeting?

**5 Methods for Capital Budgeting**

- Internal Rate of Return. …
- Net Present Value. …
- Profitability Index. …
- Accounting Rate of Return. …
- Payback Period.

## Which is the best method of capital budgeting?

Most managers and executives like methods that look at a company’s capital budgeting and performance expressed in percentages rather than dollar figures. In these cases, they tend to prefer using **IRR or the internal rate of return** instead of the NPV or net present value.

## What are the factors affecting capital budgeting?

**Factors affecting capital budgeting decisions are;**

- Technological changes: Before taking CBD, management must undertake in-depth study of cost of new product /equipment as well productive efficiencies of new as well as old equipment.
- Demand forecast: …
- Competitive strategy: …
- Type of management: …
- Cash flow: …
- Other factors:

## What is capital budgeting and techniques?

Capital budgeting is **a set of techniques used to decide when to invest in projects**. For example, one would use capital budgeting techniques to analyze a proposed investment in a new warehouse, production line, or computer system.

## What are the budgeting techniques?

**There are six main budgeting techniques:**

- Incremental budgeting.
- Activity-based budgeting.
- Value proposition budgeting.
- Zero-based budgeting.
- Cash flow budgeting.
- Surplus budgeting.

## What is difference between NPV and IRR?

The NPV method results in a dollar value that a project will produce, while **IRR generates the percentage return that the project is expected to create**. Purpose. The NPV method focuses on project surpluses, while IRR is focused on the breakeven cash flow level of a project.