Response to Capital Budgeting

In: Business and Management

Submitted By RayMDq
Words 521
Pages 3
Hi Cynthia,

I really appreciated your overview on capital budgeting and investment decisions. Given the various methods of capital budgeting I think the NPV method is probably the best. In addition to the reasons you mentioned Jim Mahar, a finance blogger also agrees because it considers ALL relevant cash flow, accounts for time value of money, ability to easily select amongst mutually exclusive projects, and as a decision rule is easy to apply consistently (2004). I personally like it because of not only does it adds to higher shareholder value and is easier to explain.

I imagine depending on the type of work being done or the position of the person doing the calculations matters. For example, small business owners who make fewer large purchases less frequently probably prefer using the payback method. I would point out to them that the payback method although easier, they might find themselves focusing on short-term thinking because it does not account for any cash flow after payback, hence ignoring the time value of money.


Mahar, J. (2004, November 12). Capital Budgeting [Blog post]. Retrieved from FinanceProfessorBlog website: capital-budgeting.html

Hi Sabina,

To financial managers compound interest is the greatest thing since sliced bread. We have learned of all the benefits when it works in our favor. Let's play devil's advocate and look at how and when compound interest can actually work against us at the personal level, small business level, or corporate level. What I am talking about is the part of the equation that looks at debt.

When it comes to loans, we all know the interest that builds on an initial principal can be hard to stomach. Dealing with loads of credit card debt is a problem I have faced. It completely boggled my mind how a $1000 line of credit, turned…...

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