Finance Numericals

Questions: 1)        What is Capital Budgeting? How it is helpful for taking long term decisions? 2)        What are the tools used in capital budgeting? 3)        How NPV helps to take an investment decision? Explain. 4)        How IRR is better than NPV and if not? Explain the reason.   5)        Suppose Mr. Sharma has decided to invest his Rs.2, 00,000 of saving in share market. But he gets confused in which companies he should invest to get enough return after 5 years: ·           Company A: Rate of return 8% annually, expected cash flow – Rs. 1, 80,000 per year ·           Company C: Rate of return 7% quarterly, expected cash flow – Rs. 3, 80,000 per year ·           Company P: Rate of return 7.9% semi-annually, expected cash flow – Rs. 2, 10,000 per year Find out which investment is best for Mr. Sharma with the help of Payback period.   Solution : Company A:      Payback period = Initial investment/Annual cash flow       = 2, 00,000 / 180,000 = 1.11 ye