Finance

Have Finance Questions? Ask a Financial Expert Online.

Ask an Expert,
Get an Answer ASAP!

Finance

What is the preferred method of ranking different capital projects

Customer Question
? Why is it...
What is the preferred method of ranking different capital projects ? Why is it preferred?


detail 250 words by wednesday 1200
Submitted: 8 years ago.Category: Finance
Show More
Show Less
Ask Your Own Finance Question
Answered in 6 hours by:
7/29/2009
Financial Professional: Haider, Tutor replied 8 years ago
Haider
Haider, Tutor
Category: Finance
Satisfied Customers: 355
Experience: Doing CAT
Verified
If you are satisfied accept it and leave positive feedback.

As capital projects require huge investment and it is not possible to revert the decision once taken, because the consequences are severe, for example you can not say no to a construction in its middle stage or you can not say to supplier of machinery to get it back once they have been shipped, therefore the capital projects should be executed after thorough evaluation. There are four basic methods are available, they are Return on original investment, payback period method, net present value method and internal rate of return method. But the most effective is the net present value as other methods do have some drawbacks, due to which they can not be use.

Return on original investment is based on average profit after tax over the life of the projects, therefore it ignores cash flow. It also does not consider time value of money. Payback period considers cash flow after tax but does not time value of money, even if time value of money is adjusted by using discounted pay back period method but it does not consider cash flow after payback period over the life of the project. Internal rate of return is near to net present value method but it ignores size of the investment as it is presented in terms of percentage therefore the amount of initial outlay is ignored.

Net present value is widely used. It is the difference between present value of inflows and present value of outflows, if present value of inflow is bigger it is called positive net present value and if present value of outflow is bigger it is called negative net present value. A project is rejected if it has negative net present value. But if there are two projects and they are mutually exclusive then the project with higher present value is going to be selected. If the projects are not mutually exclusive then NPV index or Profitability index is used to decide about a project.
Haider
Haider, Tutor
Category: Finance
Satisfied Customers: 355
Experience: Doing CAT
Verified
Haider and 87 other Finance Specialists are ready to help you
Ask your own question now
Ask Haider Your Own Question
Haider
Haider
Haider, Tutor
Category: Finance
Satisfied Customers: 355
355 Satisfied Customers
Experience: Doing CAT

Haider is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Rakhi Vasavada

Rakhi Vasavada

Financial and Legal Consultant

2,608 satisfied customers

Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years

Megan C

Megan C

Certified Public Accountant (CPA)

2,218 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

Manal Elkhoshkhany

Manal Elkhoshkhany

Tutor

1,919 satisfied customers

More than 5000 online tutoring sessions.

JKCPA

JKCPA

CPA

844 satisfied customers

Bachelors degree and CPA with Accounting experience.

Eric

Eric

Financial Manager

559 satisfied customers

Loan servicing, counseling and real estate expert. Foreclosure Expert and Financial Planner.

R. Klein, EA

R. Klein, EA

Accountant

480 satisfied customers

TurboTax Expert. QuickBooks Certified Pro Advisor

Dimitry K., Esq.

Dimitry K., Esq.

Attorney

332 satisfied customers

NASD Licensed Rep, 1997-2001, Business Attorney

< Previous | Next >

Related Finance Questions
We have a situation with an irrevocable trust. The bank is a
Hello.We have a situation with an irrevocable trust. The bank is a co-trustee and national.. The money has been in a money market account that has been FDIC insured. The bank is dissolving these and n… read more
TaxAttorneytoHelp
TaxAttorneytoHelp
Owner
Doctoral Degree
2,542 satisfied customers
I'm a soon to be divorced single mom, age 44, living on
Hello. I'm a soon to be divorced single mom, age 44, living on mostly alimony for the next 3 years. Can you help me understand how much I should be saving for retirement each month? I ill have about 3… read more
Chad CFP ®
Chad CFP ®
Certified Financial Planner(R), Pro
Master\u0027s Degree
736 satisfied customers
I have an IRA that I am not currently contributing to. My
I have an IRA that I am not currently contributing to. My husband can take early retirement money of about $600 a month. He's 51.5 years old right now. Would it make sense to take that money and inves… read more
Matthew Breecher
Matthew Breecher
President
MBA (Graduate Legal Studies)
285 satisfied customers
I work in life insurance policy analysis. We are a fairly
I work in life insurance policy analysis. We are a fairly new venture and are figuring out how we want to engage in reviewing variable policies. My greatest concern with them is the sub account alloca… read more
Chad CFP ®
Chad CFP ®
Certified Financial Planner(R), Pro
Master\u0027s Degree
736 satisfied customers
Do you know anything about oil pension checks? I need about
I need about 2K more income per month to keep nose above water. I have about 66K savings. what amount of investment woutd yield the 2K income? … read more
Chad CFP ®
Chad CFP ®
Certified Financial Planner(R), Pro
Master\u0027s Degree
736 satisfied customers
Why is it that in evaluating commercial properties, the cap
why is it that in evaluating commercial properties, the cap rate (rate of return) is inversely related to the present value? i'd think that the higher the rate of return, the more desirable the proper… read more
Matthew Breecher
Matthew Breecher
President
MBA (Graduate Legal Studies)
285 satisfied customers
We are wanting to refinance our house and pull some equity
We are wanting to refinance our house and pull some equity out. We are 57 yrs old. Would it be smarter to get a 30 yr fixed and pay extra every month towards the principal or get a 15 yr fixed rate lo… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I don't know who the right person to ask this is butbim
I don't know who the right person to ask this is butbim trying to figure out the return I got on some monies I've inested and I'm not sure how to calculate this if you can help please let me know than… read more
Rakhi Vasavada
Rakhi Vasavada
Financial and Legal Consultant
Bachelor's Degree
2,608 satisfied customers
I am filing out the government form 433F. This form is
I am filing out the government form 433F. This form is filled out for sole shareholder of C corporation; does he have to indicate the corporate income and expenses in this form or does he have to show… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Can you provide a CAGR calculator that will calculate more
Can you provide a CAGR calculator that will calculate more than 1 year? In my case I am looking to calculate for 4 years. I have found a good CARG calculator at https://financialengines.com/education-… read more
Mark Taylor
Mark Taylor
Certified Public Accountant
Masters
2,230 satisfied customers
Mini Case You have finally saved $10,000 and are ready to
Mini Case You have finally saved $10,000 and are ready to make your first investment. You have the three following alternatives for investing that money: • Capital Cities ABC, Inc. bonds with a par va… read more
Manal Elkhoshkhany
Manal Elkhoshkhany
Tutor
Foundation classes for MBA
1,919 satisfied customers
Re: HP 12C calculator. Have read the user manual but am a
Re: HP 12C calculator. Have read the user manual but am a novice so hope you could help with a specific issue. I have lease income of $2,297 per month with 3% annual increase over next 18 years. I wou… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
1.Firm Z expects an EBIT of $19,750 every year forever.It currently
1.Firm Z expects an EBIT of $19,750 every year forever.It currently has no debt.Its cost of equity is 15%.The firm can borrow at 10%.If the tax rate is 35%,what is the value of the firm? 2.Refer to qu… read more
Manal Elkhoshkhany
Manal Elkhoshkhany
Tutor
Foundation classes for MBA
1,919 satisfied customers
This is a finance questions. How does a PRIVATE company sets
This is a finance questions. How does a PRIVATE company sets a value for its preferred stock when it wants to sell it to investors so that this type of stock represents an equity in the company and at… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
My SEP-IRA had a value of $156,249 at end of 2015. How much
My SEP-IRA had a value of $156,249 at end of 2015. How much is the minimum withdrawal for 2015?… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I need a suggestion on how to get a $4,000 loan asap. I
I need a suggestion on how to get a $4,000 loan asap. I work, as does my fiance. And I am in school as well. We have no family to help us out financially. I am supposed to be receiving $1,000 a month … read more
TaxWhisperer
TaxWhisperer
Principal
Master's Degree
24 satisfied customers
The project has an internal rate of return of 17 percent. If
The project has an internal rate of return of 17 percent. If the firm has the following target capital structure and costs, what should their decision be and why?… read more
Johnmark1900
Johnmark1900
Finance Manager
Chartered Accountant
24 satisfied customers
Can a dedicated sinking fund be the funding vehicle for a non-qualifie
Can a dedicated sinking fund be the funding vehicle for a non-qualified retirement plan? If a sinking fund is used in this way would be sinking fund payments be deductible when made?… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x